SEC Vs Intelport

Judge Rodolfo B.
Garcia meted with P20,500 fine for

gross misconduct; while charge for falsification against
Celfred P. Flores dismissed.
Notes.The admission by the branch court interpreter

of her part in the loss of court records does not exonerate
the judge from his administrative liabilityjudges are
responsible not only for dispensing justice but also for
managing their courts efficiently to ensure the prompt
delivery of court services. (Meris vs. Alumbres, 369 SCRA 1
[2001])
While the Supreme Court will never tolerate or condone
any act, conduct or omission that would violate the norm of
public accountability or diminish the peoples faith in the
judiciary, neither will it hesitate to shield those under its
employ from unfonded suits that only serve to disrupt
rather than promote the orderly administration of justice.
(Ang vs. Asis, 373 SCRA 91 [2002])
o0o
G.R. No. 135808. October 6, 2008.*
SECURITIES AND EXCHANGE COMMISSION,

petitioner, vs. INTERPORT RESOURCES
CORPORATION, MANUEL S. RECTO, RENE S.
VILLARICA, PELAGIO RICALDE, ANTONIO REINA,
FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO
TANCHAN, JR., respondents.
Revised Securities Act; Administrative Law; Statutes; The

mere absence of implementing rules cannot effectively invalidate
provisions of law, where a reasonable construction that will
support the law may be given.In the absence of any
constitutional or statutory infirmity, which may concern Sections
30 and 36 of the Revised Securities Act, this Court upholds these
provisions as legal and binding. It is well
_______________
*EN BANC.
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Securities and Exchange Commission vs. Interport Resources
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settled that every law has in its favor the presumption of validity.
Unless and until a specific provision of the law is declared invalid
and unconstitutional, the same is valid and binding for all intents
and purposes. The mere absence of implementing rules cannot
effectively invalidate provisions of law, where a reasonable
construction that will support the law may be given. In People v.
Rosenthal, 68 Phil. 328 (1939), this Court ruled that: In this
connection we cannot pretermit reference to the rule that
legislation should not be held invalid on the ground of
uncertainty if susceptible of any reasonable construction that will
support and give it effect. An Act will not be declared inoperative
and ineffectual on the ground that it furnishes no adequate means
to secure the purpose for which it is passed, if men of common
sense and reason can devise and provide the means, and all the
instrumentalities necessary for its execution are within the reach
of those intrusted therewith. (25 R.C.L., pp. 810, 811)
Same; To rule that the absence of implementing rules can render
ineffective an act of Congress, such as the Revised Securities Act,
would empower the administrative bodies to defeat the legislative
will by delaying the implementing rules; To assert that a law is
less than a law, because it is made to depend on a future event or
act, is to rob the Legislature of the power to act wisely for the
public welfare whenever a law is passed relating to a state of
affairs not yet developed, or to things future and impossible to fully
know.The necessity for vesting administrative authorities with
power to make rules and regulations is based on the
impracticability of lawmakers providing general regulations for
various and varying details of management. To rule that the
absence of implementing rules can render ineffective an act of
Congress, such as the Revised Securities Act, would empower the
administrative bodies to defeat the legislative will by delaying the
implementing rules. To assert that a law is less than a law,
because it is made to depend on a future event or act, is to rob the
Legislature of the power to act wisely for the public welfare
whenever a law is passed relating to a state of affairs not yet
developed, or to things future and impossible to fully know. It is
well established that administrative authorities have the power to
promulgate rules and regulations to implement a given statute
and to effectuate its policies, provided such rules and regulations
conform to the terms and standards prescribed by the statute as
well as purport to carry into effect its general policies.
Nevertheless, it is undisputable that the rules and regulations
cannot assert for themselves a
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356 SUPREME COURT REPORTS ANNOTATED

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more extensive prerogative or deviate from the mandate of the

statute. Moreover, where the statute contains sufficient standards
and an unmistakable intent, as in the case of Sections 30 and 36
of the Revised Securities Act, there should be no impediment to
its implementation.
Same; Insider Trading; Section 30 of the Revised Securities
Act explains in simple terms that the insiders misuse of nonpublic
and undisclosed information is the gravamen of illegal conduct
the intent of the law is the protection of investors against fraud,
committed when an insider, using secret information, takes
advantage of an uninformed investor.The provision explains in
simple terms that the insiders misuse of nonpublic and
undisclosed information is the gravamen of illegal conduct. The
intent of the law is the protection of investors against fraud,
committed when an insider, using secret information, takes
advantage of an uninformed investor. Insiders are obligated to
disclose material information to the other party or abstain from
trading the shares of his corporation. This duty to disclose or
abstain is based on two factors: first, the existence of a
relationship giving access, directly or indirectly, to information
intended to be available only for a corporate purpose and not for
the personal benefit of anyone; and second, the inherent
unfairness involved when a party takes advantage of such
information knowing it is unavailable to those with whom he is
dealing.
Same; Same; Words and Phrases; Material Fact, Reasonable
Person, Nature and Reliability, and Generally Available,
Explained; Under the law, what is required to be disclosed is a fact
of special significance which may be (a) a material fact which
would be likely, on being made generally available, to affect the
market price of a security to a significant extent, or (b) one which a
reasonable person would consider especially important in
determining his course of action with regard to the shares of stock;
In determining whether or not the terms material fact,
reasonable person, nature and reliability, and generally
available, are vague, they must be evaluated in the context of
Section 30 of the Revised Securities Act.Respondents further
aver that under Section 30 of the Revised Securities Act, the SEC
still needed to define the following terms: material fact,
reasonable person, nature and reliability and
generally available. In determining whether or not these
terms are vague, these terms must be evaluated in the context of
Section
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30 of the Revised Securties Act. To fully understand how the

terms were used in the aforementioned provision, a discussion of
what the law recognizes as a fact of special significance is
required, since the duty to disclose such fact or to abstain from
any transaction is imposed on the insider only in connection with
a fact of special significance. Under the law, what is required to be
disclosed is a fact of special significance which may be (a) a
material fact which would be likely, on being made generally
available, to affect the market price of a security to a significant
extent, or (b) one which a reasonable person would consider
especially important in determining his course of action with
regard to the shares of stock.
Same; Same; Same; A fact is material if it induces or tends to
induce or otherwise affect the sale or purchase of its securities.
Material FactThe concept of a material fact is not a new one.
As early as 1973, the Rules Requiring Disclosure of Material
Facts by Corporations Whose Securities Are Listed In Any Stock
Exchange or Registered/Licensed Under the Securities Act, issued
by the SEC on 29 January 1973, explained that [a] fact is
material if it induces or tends to induce or otherwise affect the
sale or purchase of its securities. Thus, Section 30 of the Revised
Securities Act provides that if a fact affects the sale or purchase of
securities, as well as its price, then the insider would be required
to disclose such information to the other party to the transaction
involving the securities. This is the first definition given to a fact
of special significance.
Same; Same; Same; A reasonable person is not a problematic
legal concept that needs to be clarified for the purpose of giving
effect to a statute; rather, it is the standard on which most of our
legal doctrines stand.Reasonable PersonThe second
definition given to a fact of special significance involves the
judgment of a reasonable person. Contrary to the allegations of
the respondents, a reasonable person is not a problematic legal
concept that needs to be clarified for the purpose of giving effect to
a statute; rather, it is the standard on which most of our legal
doctrines stand. The doctrine on negligence uses the discretion of
the reasonable man as the standard. A purchaser in good faith
must also take into account facts which put a reasonable man on
his guard. In addition, it is the belief of the reasonable and
prudent man that an offense was committed that sets the criteria
for probable cause for a warrant of arrest. This Court, in such
cases, differentiated the reasonable and
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prudent man from a person with training in the law such as a

prosecutor or a judge, and identified him as the average man on
the street, who weighs facts and circumstances without resorting
to the calibrations of our technical rules of evidence of which his
knowledge is nil. Rather, he relies on the calculus of common
sense of which all reasonable men have in abundance. In the
same vein, the U.S. Supreme Court similarly determined its
standards by the actual significance in the deliberations of a
reasonable investor, when it ruled in TSC Industries, Inc. v.
Northway, Inc., 48 L ed 2d 757, 766 (1976), that the
determination of materiality requires delicate assessments of the
inferences a reasonable shareholder would draw from a given set
of facts and the significance of those inferences to him.
Same; Same; Same; The nature and reliability of a
significant fact in determining the course of action a reasonable
person takes regarding securities must be clearly viewed in
connection with the particular circumstances of a caseto
enumerate all circumstances that would render the nature and
reliability of a fact to be of special significance is close to
impossible.Nature and ReliabilityThe factors affecting the
second definition of a fact of special significance, which is of
such importance that it is expected to affect the judgment of a
reasonable man, were substantially lifted from a test of
materiality pronounced in the case In the Matter of Investors
Management Co., Inc.: Among the factors to be considered in
determining whether information is material under this test are
the degree of its specificity, the extent to which it differs from
information previously publicly disseminated, and its reliability in
light of its nature and source and the circumstances under which
it was received. It can be deduced from the foregoing that the
nature and reliability of a significant fact in determining the
course of action a reasonable person takes regarding securities
must be clearly viewed in connection with the particular
circumstances of a case. To enumerate all circumstances that
would render the nature and reliability of a fact to be of special
significance is close to impossible. Nevertheless, the proper
adjudicative body would undoubtedly be able to determine if facts
of a certain nature and reliability can influence a reasonable
persons decision to retain, sell or buy securities, and thereafter
explain and justify its factual findings in its decision.
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Same; Same; Same; What is referred to in our laws as a fact of
special significance is referred to in the U.S. as the materiality
concept and the latter is similarly not provided with a precise
definition.Materiality ConceptA discussion of the
materiality concept would be relevant to both a material fact
which would affect the market price of a security to a significant
extent and/or a fact which a reasonable person would consider in
determining his or her cause of action with regard to the shares of
stock. Significantly, what is referred to in our laws as a fact of
special significance is referred to in the U.S. as the materiality
concept and the latter is similarly not provided with a precise
definition. In Basic v. Levinson, 99 L ed 2d 194, 211 (1988), the
U.S. Supreme Court cautioned against confining materiality to a
rigid formula, stating thus: A bright-line rule indeed is easier to
follow than a standard that requires the exercise of judgment in
the light of all the circumstances. But ease of application alone is
not an excuse for ignoring the purposes of the Securities Act and
Congress policy decisions. Any approach that designates a single
fact or occurrence as always determinative of an inherently fact-
specific finding such as materiality, must necessarily be
overinclusive or underinclusive. Moreover, materiality will
depend at any given time upon a balancing of both the indicated
probability that the event will occur and the anticipated
magnitude of the event in light of the totality of the company
activity.
Same; Same; Same; Whether information found in a newspaper, a
specialized magazine, or any cyberspace media be sufficient for the
term generally available is a matter which may be adjudged
given the particular circumstances of the casethe standards
cannot remain at a standstill, as a medium, which is widely used
today was, at some previous point in time, inaccessible to most.
Generally AvailableSection 30 of the Revised Securities Act
allows the insider the defense that in a transaction of securities,
where the insider is in possession of facts of special significance,
such information is generally available to the public. Whether
information found in a newspaper, a specialized magazine, or any
cyberspace media be sufficient for the term generally available
is a matter which may be adjudged given the particular
circumstances of the case. The standards cannot remain at a
standstill. A medium, which is widely used today was, at some
previous point in time, inaccessible to most. Furthermore, it
would be difficult to approximate how the rules may be applied to
the instant case, where investigation has
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not even been started. Respondents failed to allege that the
negotiations of their agreement with GHB were made known to
the public through any form of media for there to be a proper
appreciation of the issue presented.
Same; Same; Same; Beneficial Owner; Parties; Locus Standi;
Beneficial owner has been defined, first, to indicate the interest of
a beneficiary in trust property (also called equitable ownership),
and second, to refer to the power of a corporate shareholder to buy
or sell the shares, though the shareholder is not registered in the
corporations book as the owner; Usually, beneficial ownership is
distinguished from naked ownership, which is the enjoyment of all
the benefits and privileges of ownership, as against possession of
the bare title to property; The validity of a statute may be contested
only by one who will sustain a direct injury as a result of its
enforcement.Section 36(a) refers to the beneficial owner.
Beneficial owner has been defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust property
(also called equitable ownership); and second, to refer to the
power of a corporate shareholder to buy or sell the shares, though
the shareholder is not registered in the corporations books as the
owner. Usually, beneficial ownership is distinguished from naked
ownership, which is the enjoyment of all the benefits and
privileges of ownership, as against possession of the bare title to
property. Even assuming that the term beneficial ownership
was vague, it would not affect respondents case, where the
respondents are directors and/or officers of the corporation, who
are specifically required to comply with the reportorial
requirements under Section 36(a) of the Revised Securities Act.
The validity of a statute may be contested only by one who will
sustain a direct injury as a result of its enforcement.
Same; Same; Sections 30 and 36 of the Revised Securities Act were
enacted to promote full disclosure in the securities market and
prevent unscrupulous individuals, who by their positions obtain
non-public information, from taking advantage of an uninformed
public.Sections 30 and 36 of the Revised Securities Act were
enacted to promote full disclosure in the securities market and
prevent unscrupulous individuals, who by their positions obtain
non-public information, from taking advantage of an uninformed
public. No individual would invest in a market which can be
manipulated by a limited number of corporate insiders. Such
reaction would stifle, if
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not stunt, the growth of the securities market. To avert the

occurrence of such an event, Section 30 of the Revised Securities
Act prevented the unfair use of non-public information in
securities transactions, while Section 36 allowed the SEC to
monitor the transactions entered into by corporate officers and
directors as regards the securities of their companies.
Same; Same; Administrative Law; Statutes; The fact that the
Full Disclosure Rules were promulgated by the Securities and
Exchange Commission (SEC) only on 24 July 1996, even as the
Revised Securities Act was approved on 23 February 1982, does
not render ineffective in the meantime Section 36 of the Revised
Securities Act; The effectivity of a statute which imposes
reportorial requirements cannot be suspended by the issuance of
specified forms, especially where compliance therewith may be
made even without such forms.The Revised Securities Act was
approved on 23 February 1982. The fact that the Full Disclosure
Rules were promulgated by the SEC only on 24 July 1996 does not
render ineffective in the meantime Section 36 of the Revised
Securities Act. It is already unequivocal that the Revised
Securities Act requires full disclosure and the Full Disclosure
Rules were issued to make the enforcement of the law more
consistent, efficient and effective. It is equally reasonable to state
that the disclosure forms later provided by the SEC, do not, in any
way imply that no compliance was required before the forms were
provided. The effectivity of a statute which imposes reportorial
requirements cannot be suspended by the issuance of specified
forms, especially where compliance therewith may be made even
without such forms. The forms merely made more efficient the
processing of requirements already identified by the statute.
Same; Same; Same; Administrative Code of 1987 (E.O. 282);
Chapter 3, Book VII of the Administrative Code, entitled
Adjudication, does not affect the investigatory functions of the
agenciesthe Rules of Practice and Procedure of Securities and
Exchange Commissions (SECs) Prosecution and Enforcement
Department (PED) need not comply with the provisions of the
Administrative Code on adjudication, particularly Section 12(3),
Chapter 3, Book VII.It must be pointed out that Chapter 3,
Book VII of the Administrative Code, entitled Adjudication, does
not affect the investigatory functions of the agencies. The law
creating the PED, Section 8 of Presidential Decree No. 902-A, as
amended, defines the authority granted to the
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PED, thus: SEC. 8. The Prosecution and Enforcement

Department shall have, subject to the Commissions control and
supervision, the exclusive authority to investigate, on
complaint or motu proprio, any act or omission of the Board of
Directors/Trustees of corporations, or of partnerships, or of other
associations, or of their stockholders, officers or partners,
including any fraudulent devices, schemes or representations, in
violation of any law or rules and regulations administered and
enforced by the Commission; to file and prosecute in
accordance with law and rules and regulations issued by the
Commission and in appropriate cases, the corresponding criminal
or civil case before the Commission or the proper court or body
upon prima facie finding of violation of any laws or rules and
regulations administered and enforced by the Commission; and to
perform such other powers and functions as may be provided by
law or duly delegated to it by the Commission. (Emphasis
provided.) The law creating PED empowers it to investigate
violations of the rules and regulations promulgated by the SEC
and to file and prosecute such cases. It fails to mention any
adjudicatory functions insofar as the PED is concerned. Thus, the
PED Rules of Practice and Procedure need not comply with the
provisions of the Administrative Code on adjudication,
particularly Section 12(3), Chapter 3, Book VII.
Same; Same; Same; Investigative and Adjudicative Functions,
Distinguished; Words and Phrases.In Cario v. Commission on
Human Rights, 204 SCRA 483 (1991), this Court sets out the
distinction between investigative and adjudicative functions,
thus: Investigate, commonly understood, means to examine,
explore, inquire or delve or probe into, research on, study. The
dictionary definition of investigate is to observe or study
closely; inquire into systematically: to search or inquire into xx
to subject to an official probe xx: to conduct an official inquiry.
The purpose of an investigation, of course is to discover, to find
out, to learn, obtain information. Nowhere included or intimated
is the notion of settling, deciding or resolving a controversy
involved in the facts inquired into by application of the law to the
facts established by the inquiry. The legal meaning of
investigate is essentially the same: (t)o follow up step by step
by patient inquiry or observation. To trace or track; to search into;
to examine and inquire into with care and accuracy; to find out by
careful inquisition; examination; the taking of evidence; a legal
inquiry; to inquire; to make an investigation, investigation
being in turn described as (a)n administrative function, the
exercise of
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which ordinarily does not require a hearing. 2 Am J2d Adm L Sec.

257; xx an inquiry, judicial or otherwise, for the discovery and
collection of facts concerning a certain matter or matters.
Adjudicate, commonly or popularly understood, means to
adjudge, arbitrate, judge, decide, determine, resolve, rule on,
settle. The dictionary defines the term as to settle finally (the
rights and duties of parties to a court case) on the merits of issues
raised: xx to pass judgment on: settle judicially: xx act as judge.
And adjudge means to decide or rule upon as a judge or with
judicial or quasi-judicial powers: xx to award or grant judicially in
a case of controversy xxx. In a legal sense, adjudicate means:
To settle in the exercise of judicial authority. To determine
finally. Synonymous with adjudge in its strictest sense; and
adjudge means: To pass on judicially, to decide, settle, or
decree, or to sentence or condemn. x x x Implies a judicial
determination of a fact, and the entry of a judgment.
Same; Same; Same; Under Section 2.2 of Exceutive Order No. 26,
issued on 7 October 1992, abbreviated proceedings are prescribed
in the administrative cases.This is not to say that
administrative bodies performing adjudicative functions are
required to strictly comply with the requirements of Chapter 3,
Rule VII of the Administrative Code, particularly, the right to
cross-examination. It should be noted that under Section 2.2 of
Executive Order No. 26, issued on 7 October 1992, abbreviated
proceedings are prescribed in the disposition of administrative
cases: 2. Abbreviation of Proceedings. All administrative agencies
are hereby directed to adopt and include in their respective Rules
of Procedure the following provisions: xxxx 2.2 Rules adopting,
unless otherwise provided by special laws and without prejudice
to Section 12, Chapter 3, Book VII of the Administrative Code of
1987, the mandatory use of affidavits in lieu of direct testimonies
and the preferred use of depositions whenever practicable and
convenient. As a consequence, in proceedings before
administrative or quasi-judicial bodies, such as the National
Labor Relations Commission and the Philippine Overseas
Employment Agency, created under laws which authorize
summary proceedings, decisions may be reached on the basis of
position papers or other documentary evidence only. They are not
bound by technical rules of procedure and evidence. In fact, the
hearings before such agencies do not connote full adversarial
proceedings. Thus, it is not necessary for the rules to require
affiants to appear and testify and to be cross-examined by the
counsel of the adverse party. To require otherwise
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would negate the summary nature of the administrative or quasi-

judicial proceedings.
Same; Same; Securities Regulation Code; Statutes; Statutory
Construction; While the absolute repeal of a law generally deprives
a court of its authority to penalize the person charged with the
violation of the old law prior to its appeal, an exception to this rule
comes about when the repealing law punishes the act previously
penalized under the old law.The Securities Regulations Code
absolutely repealed the Revised Securities Act. While the absolute
repeal of a law generally deprives a court of its authority to
penalize the person charged with the violation of the old law prior
to its appeal, an exception to this rule comes about when the
repealing law punishes the act previously penalized under the old
law. The Court, in Benedicto v. Court of Appeals, 364 SCRA 334
(2001), sets down the rules in such instances: As a rule, an
absolute repeal of a penal law has the effect of depriving the court
of its authority to punish a person charged with violation of the
old law prior to its repeal. This is because an unqualified repeal of
a penal law constitutes a legislative act of rendering legal what
had been previously declared as illegal, such that the offense no
longer exists and it is as if the person who committed it never did
so. There are, however, exceptions to the rule. One is the
inclusion of a saving clause in the repealing statute that provides
that the repeal shall have no effect on pending actions. Another
exception is where the repealing act reenacts the former statute
and punishes the act previously penalized under the old law. In
such instance, the act committed before the reenactment
continues to be an offense in the statute books and pending cases
are not affected, regardless of whether the new penalty to be
imposed is more favorable to the accused.
Same; Same; Prescription; Preliminary Investigation; It is an
established doctrine that a preliminary investigation interrupts
the prescription period.It is an established doctrine that a
preliminary investigation interrupts the prescription period. A
preliminary investigation is essentially a determination whether
an offense has been committed, and whether there is probable
cause for the accused to have committed an offense: A preliminary
investigation is merely inquisitorial, and it is often the only
means of discovering the persons who may be reasonably charged
with a crime, to enable the fiscal to prepare the complaint or
information. It is not a trial of the
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case on the merits and has no purpose except that of determining

whether a crime has been committed or whether there is probable
cause to believe that the accused is guilty thereof. Under Section
45 of the Revised Securities Act, which is entitled Investigations,
Injunctions and Prosecution of Offenses, the Securities Exchange
Commission (SEC) has the authority to make such investigations
as it deems necessary to determine whether any person has
violated or is about to violate any provision of this Act XXX. After
a finding that a person has violated the Revised Securities Act,
the SEC may refer the case to the DOJ for preliminary
investigation and prosecution.
Same; Same; Same; Same; Doctrine of Primary Jurisdiction; A
criminal complaint is first filed with the Securities and Exchange
Commission, which determines the existence of probable cause,
before a preliminary investigation can be commenced by the
Department of Justicea criminal complaint for violation of any
law or rule administered by the Securities and Exchange
Commission (SEC) must first be filed with the latter. If the
Commission finds that there is probable cause, then it should refer
the case to the Department of Justice (DOJ); A criminal charge for
violation of the Securities Regulation Code is a specialized dispute,
hence it must first be referred to an administrative agency of
special competence, i.e., the Securities and Exchange Commission
(SEC); Under the doctrine of primary jurisdiction, courts will not
determine a controversy involving a question within the
jurisdiction of the administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring
the specialized knowledge and expertise of said administrative
tribunal to determine technical and intricate matters of fact.
While the SEC investigation serves the same purpose and entails
substantially similar duties as the preliminary investigation
conducted by the DOJ, this process cannot simply be disregarded.
In Baviera v. Paglinawan, 515 SCRA 170 (2007), this Court
enunciated that a criminal complaint is first filed with the SEC,
which determines the existence of probable cause, before a
preliminary investigation can be commenced by the DOJ. In the
aforecited case, the complaint filed directly with the DOJ was
dismissed on the ground that it should have been filed first with
the SEC. Similarly, the offense was a violation of the Securities
Regulations Code, wherein the procedure for criminal prosecution
was reproduced from Section 45 of the Revised Securities Act.
This Court affirmed the dismissal,
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which it explained thus: The Court of Appeals held that under the
above provision, a criminal complaint for violation of any law or
rule administered by the SEC must first be filed with the latter. If
the Commission finds that there is probable cause, then it should
refer the case to the DOJ. Since petitioner failed to comply with
the foregoing procedural requirement, the DOJ did not gravely
abuse its discretion in dismissing his complaint in I.S. No. 2004-
229. A criminal charge for violation of the Securities Regulation
Code is a specialized dispute. Hence, it must first be referred to
an administrative agency of special competence, i.e., the SEC.
Under the doctrine of primary jurisdiction, courts will not
tribunal to determine technical and intricate matters of fact. The
Securities Regulation Code is a special law. Its enforcement is
particularly vested in the SEC. Hence, all complaints for any
violation of the Code and its implementing rules and regulations
should be filed with the SEC. Where the complaint is criminal in
nature, the SEC shall indorse the complaint to the DOJ for
preliminary investigation and prosecution as provided in Section
53.1 earlier quoted.
Same; Same; Same; Same; The law on the prescription period was
never intended to put the prosecuting bodies in an impossible bind
in which the prosecution of a case would be placed way beyond
their control, for even if they avail themselves of the proper remedy,
they would still be barred from investigating and prosecuting the
case.To reiterate, the SEC must first conduct its investigations
and make a finding of probable cause in accordance with the
doctrine pronounced in Baviera v. Paglinawan, 515 SCRA 170
(2007). In this case, the DOJ was precluded from initiating a
preliminary investigation since the SEC was halted by the Court
of Appeals from continuing with its investigation. Such a
situation leaves the prosecution of the case at a standstill, and
neither the SEC nor the DOJ can conduct any investigation
against the respondents, who, in the first place, sought the
injunction to prevent their prosecution. All that the SEC could do
in order to break the impasse was to have the Decision of the
Court of Appeals overturned, as it had done at the earliest
opportunity in this case. Therefore, the period during which the
SEC was prevented from continuing with its investigation should
not be
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counted against it. The law on the prescription period was never
intended to put the prosecuting bodies in an impossible bind in
which the prosecution of a case would be placed way beyond their
control; for even if they avail themselves of the proper remedy,
they would still be barred from investigating and prosecuting the
case.
Same; Same; Same; Same; Given the nature and purpose of
the investigation conducted by the Securities and Exchange
Commission (SEC), which is equivalent to the preliminary
investigation conducted by the Department of Justice (DOJ) in
criminal cases, such investigation would surely interrupt the
prescription period.Indubitably, the prescription period is
interrupted by commencing the proceedings for the prosecution of
the accused. In criminal cases, this is accomplished by initiating
the preliminary investigation. The prosecution of offenses
punishable under the Revised Securities Act and the Securities
Regulations Code is initiated by the filing of a complaint with the
SEC or by an investigation conducted by the SEC motu proprio.
Only after a finding of probable cause is made by the SEC can the
DOJ instigate a preliminary investigation. Thus, the investigation
that was commenced by the SEC in 1995, soon after it discovered
the questionable acts of the respondents, effectively interrupted
the prescription period. Given the nature and purpose of the
investigation conducted by the SEC, which is equivalent to the
preliminary investigation conducted by the DOJ in criminal cases,
such investigation would surely interrupt the prescription period.
TINGA, J., Concurring Opinion:
Revised Securities Act; Insider Trading; Manipulative devices and
deceptive practices, including insider trading, throw a monkey
wrench right into the heart of the securities industrywhen
someone trades in the market with unfair advantage in the form of
highly valuable secret inside information, all other participants
are defrauded.The securities market, when active and vibrant,
is an effective engine of economic growth. It is more able to
channel capital as it tends to favor start-up and venture capital
companies. To remain attractive to investors, however, the stock
market should be fair and orderly. All the regulations, all the
requirements, all the procedures and all the people in the
industry should strive to achieve this avowed objective.
Manipulative devices and deceptive practices, including insider
trading, throw a monkey wrench right into the heart of the
securities industry. When someone trades in the market
368

Corporation
with unfair advantage in the form of highly valuable secret inside

information, all other participants are defrauded. All of the
mechanisms become worthless. Given enough of stock market
scandals coupled with the related loss of faith in the market, such
abuses could presage a severe drain of capital. And investors
would eventually feel more secure with their money invested
elsewhere.
Same; Same; Disclosure regulation requires issuers of
securities to make public a large amount of financial information
to actual and potential investors; Financial activity regulation
consists of rules about traders of securities and trading on or off
the stock exchange. In checking securities fraud, regulation of
the stock market assumes quite a few forms, the most common
being disclosure regulation and financial activity regulation.
Disclosure regulation requires issuers of securities to make public
a large amount of financial information to actual and potential
investors. The standard justification for disclosure rules is that
the managers of the issuing firm have more information about the
financial health and future of the firm than investors who own or
are considering the purchase of the firms securities. Financial
activity regulation consists of rules about traders of securities and
trading on or off the stock exchange. A prime example of this form
of regulation is the set of rules against trading by insiders.
Same; Same; Words and Phrases; In its barest essence, insider
trading involves the trading of securities based on knowledge of
material information not disclosed to the public at the time.In
its barest essence, insider trading involves the trading of
securities based on knowledge of material information not
disclosed to the public at the time. Such activity is generally
prohibited in many jurisdictions, including our own, though the
particular scope and definition of insider trading depends on the
legislation or case law of each jurisdiction. In the United States,
the rule has been stated as that anyone who, for trading for his
own account in the securities of a corporation has access, directly
or indirectly, to information intended to be available only for a
corporate purpose and not for the personal benefit of anyone may
not take advantage of such information knowing it is unavailable
to those with whom he is dealing, i.e., the investing public.
369
VOL. 567, OCTOBER 6, 2008 369

Corporation
Same; Same; Administrative Law; By no means is the

Congress impervious to the concern that certain statutory
provisions are best enforced only after an administrative
regulation implementing the same is promulgatedin such cases,
the legislature is solicitous enough to specifically condition the
enforcement of the statute upon the promulgation of the relevant
administrative rules.Respondents essentially contend that the
SEC is precluded from enforcing its statutory powers unless it
first translates the statute into a more comprehensive set of rules.
Without denigrating the SECs delegated rule-making power,
each provision of the law already constitutes an executable
command from the legislature. Any refusal on the part of the SEC
to enforce the statute on the premise that it had yet to undergo
the gauntlet of administrative interpretation is derelict to that
bodys legal mandate. By no means is the Congress impervious to
the concern that certain statutory provisions are best enforced
only after an administrative regulation implementing the same is
promulgated. In such cases, the legislature is solicitous enough to
specifically condition the enforcement of the statute upon the
promulgation of the relevant administrative rules. Yet in cases
where the legislature does not see fit to impose such a
conditionality, the body tasked with enforcing the law has no
choice but to do so. Any quibbling as to the precise meaning of the
statutory language would be duly resolved through the exercise of
judicial review.
CARPIO, J., Dissenting Opinion:
Criminal Law; Prescription; Act No. 3326; Proceedings
referred to in Section 2 of Act No. 3326 are judicial proceedings
and not administrative proceedings.This ruling of the majority
violates Section 2 of Act No. 3326 entitled An Act to Establish
Periods of Prescription for Violations Penalized by Special Acts
and Municipal Ordinances and To Provide When Prescription
Shall Begin To Run. Section 2 provides: Section 2. Prescription
shall begin to run from the day of the commission of the violation
of the law, and if the same be not known at the time, from the
discovery thereof and the institution of judicial proceedings
for its investigation and punishment. In Zaldivia v. Reyes,
Jr., 211 SCRA 277 (1991), the Court ruled that the proceedings
referred to in Section 2 of Act No. 3326 are judicial proceedings
and not administrative proceedings.
370

Securities and Exchange Commission vs. Interport
Resources Corporation
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Fortunato F.L. Viray, Jr. for respondent Tanchan, Jr.
Castillo, Laman, Tan, Pantaleon & San Jose Law Firm
for Interport Resources Corporation.
Rodriguez, Delos Santos and Naidas Law Offices for
respondent Manuel D. Recto, et al.
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45
of the Rules of Court, assailing the Decision,1 dated 20
August 1998, rendered by the Court of Appeals in C.A.-G.R.
SP No. 37036, enjoining petitioner Securities and Exchange
Commission (SEC) from taking cognizance of or initiating
any action against the respondent corporation Interport
Resources Corporation (IRC) and members of its board of
directors, respondents Manuel S. Recto, Rene S. Villarica,
Pelagio Ricalde, Antonio Reina, Francisco Anonuevo,
Joseph Sy and Santiago Tanchan, Jr., with respect to
Sections 8, 30 and 36 of the Revised Securities Act. In the
same Decision of the appellate court, all the proceedings
taken against the respondents, including the assailed SEC
Omnibus Orders of 25 January 1995 and 30 March 1995,
were declared void.
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC
approved a Memorandum of Agreement with Ganda
Holdings Berhad (GHB). Under the Memorandum of
Agreement, IRC acquired
_______________
1Penned by Associate Justice Emeterio C. Cui with Associate Justices

Angelina Sandoval-Gutierrez and Conrado M. Vasquez, Jr., concurring.
Rollo, pp. 31-38.
371
VOL. 567, OCTOBER 6, 2008 371

100% or the entire capital stock of Ganda Energy Holdings,

Inc. (GEHI),2 which would own and operate a 102
megawatt (MW) gas turbine power-generating barge. The
agreement also stipulates that GEHI would assume a five-
year power purchase contract with National Power
Corporation. At that time, GEHIs power-generating barge
was 97% complete and would go on-line by mid-September
of 1994. In exchange, IRC will issue to GHB 55% of the
expanded capital stock of IRC amounting to 40.88 billion
shares which had a total par value of P488.44 million.3
On the side, IRC would acquire 67% of the entire capital
stock of Philippine Racing Club, Inc. (PRCI). PRCI owns
25.724 hectares of real estate property in Makati. Under
the Agreement, GHB, a member of the Westmont Group of
Companies in Malaysia, shall extend or arrange a loan
required to pay for the proposed acquisition by IRC of
PRCI.4
IRC alleged that on 8 August 1994, a press release
announcing the approval of the agreement was sent
through facsimile transmission to the Philippine Stock
Exchange and the SEC, but that the facsimile machine of
the SEC could not receive it. Upon the advice of the SEC,
the IRC sent the press release on the morning of 9 August
1994.5
The SEC averred that it received reports that IRC failed
to make timely public disclosures of its negotiations with
GHB and that some of its directors, respondents herein,
heavily traded IRC shares utilizing this material insider
information. On 16 August 1994, the SEC Chairman issued
a directive requiring IRC to submit to the SEC a copy of its
aforesaid Memorandum of Agreement with GHB. The SEC
Chairman further directed all principal officers of IRC to
appear at a hearing before the Brokers and Exchanges
Department (BED)
_______________
2GEHI is a subsidiary wholly owned by GHB. CA Rollo, p. 51.

3Id., at pp. 46-49.
4Id.
5Id., at pp. 5-6.
372

of the SEC to explain IRCs failure to immediately disclose

the information as required by the Rules on Disclosure of
Material Facts.6
In compliance with the SEC Chairmans directive, the
IRC sent a letter dated 16 August 1994 to the SEC,
attaching thereto copies of the Memorandum of Agreement.
Its directors, Manuel Recto, Rene Villarica and Pelagio
Ricalde, also appeared before the SEC on 22 August 1994
to explain IRCs alleged failure to immediately disclose
material information as required under the Rules on
Disclosure of Material Facts.7
On 19 September 1994, the SEC Chairman issued an
Order finding that IRC violated the Rules on Disclosure of
Material Facts, in connection with the Old Securities Act of
1936, when it failed to make timely disclosure of its
negotiations with GHB. In addition, the SEC pronounced
that some of the officers and directors of IRC entered into
transactions involving IRC shares in violation of Section
30, in relation to Section 36, of the Revised Securities Act.8
Respondents filed an Omnibus Motion, dated 21
September 1994, which was superseded by an Amended
Omnibus Motion, filed on 18 October 1994, alleging that
the SEC had no authority to investigate the subject matter,
since under Section 8 of Presidential Decree No. 902-A,9 as

since under Section 8 of Presidential Decree No. 902-A,9 as
amended by
_______________
6Rollo, pp. 9-10.

7 CA Rollo, p. 6; Rules Requiring Disclosure of Material Facts by
Corporations Whose Securities Are Listed in Any Stock Exchange or
Registered/Licensed Under the Securities Act, issued by the Securities
and Exchange Commission on 8 February 1973; see Rollo, p. 65.
8Rollo, p. 10.
9SEC. 8. The Prosecution and Enforcement Department shall have,
subject to the Commissions control and supervision, the exclusive
authority to investigate, on complaint or motu proprio, any act or omission
of the Board of Directors/Trustees of corporations, or of partnerships, or of
other associations, or of their stockholders, officers or partners, including
any fraudulent devices, schemes or
373
VOL. 567, OCTOBER 6, 2008 373

Presidential Decree No. 1758, jurisdiction was conferred

upon the Prosecution and Enforcement Department (PED)
of the SEC. Respondents also claimed that the SEC
violated their right to due process when it ordered that the
respondents appear before the SEC and show cause why
no administrative, civil or criminal sanctions should be
imposed on them, and, thus, shifted the burden of proof to
the respondents. Lastly, they sought to have their cases
tried jointly given the identical factual situations
surrounding the alleged violation committed by the
respondents.10
Respondents also filed a Motion for Continuance of
Proceedings on 24 October 1994, wherein they moved for
discontinuance of the investigations and the proceedings
before the SEC until the undue publicity had abated and
the investigating officials had become reasonably free from
prejudice and public pressure.11
No formal hearings were conducted in connection with
the aforementioned motions, but on 25 January 1995, the
SEC issued an Omnibus Order which thus disposed of the
same in this wise:12
WHEREFORE, premised on the foregoing considerations, the

Commission resolves and hereby rules:
1. To create a special investigating panel to hear and decide
the instant case in accordance with the Rules of Practice and
Proce-
_______________
representations, in violation of any law or rules and regulations administered and

enforced by the Commission; to file and prosecute in accordance with law and
rules and regulations issued by the Commission and in appropriate cases, the
corresponding criminal or civil case before the Commission or the proper court or
body upon prima facie finding of violation of any laws or rules and regulations
administered and enforced by the Commission; and to perform such other powers
and functions as may be provided by law or duly delegated to it by the
Commission.
10CA Rollo, pp. 68-94.

11Id., at pp. 95-107.
12Id., at pp. 39-43.
374

Corporation
dure Before the Prosecution and Enforcement Department (PED),

Securities and Exchange Commission, to be composed of Attys.
James K. Abugan, Medardo Devera (Prosecution and
Enforcement Department), and Jose Aquino (Brokers and
Exchanges Department), which is hereby directed to expeditiously
resolve the case by conducting continuous hearings, if possible.
2. To recall the show cause orders dated September 19, 1994
requiring the respondents to appear and show cause why no
administrative, civil or criminal sanctions should be imposed on
them.
3. To deny the Motion for Continuance for lack of merit.
Respondents filed an Omnibus Motion for Partial

Reconsideration,13 questioning the creation of the special
investigating panel to hear the case and the denial of the
Motion for Continuance. The SEC denied reconsideration
in its Omnibus Order dated 30 March 1995.14
The respondents filed a petition before the Court of
Appeals docketed as C.A.-G.R. SP No. 37036, questioning
the Omnibus Orders dated 25 January 1995 and 30 March
1995.15 During the proceedings before the Court of Appeals,
respondents filed a Supplemental Motion16 dated 16 May
1995, wherein they prayed for the issuance of a writ of
preliminary injunction enjoining the SEC and its agents
from investigating and proceeding with the hearing of the
case against respondents herein. On 5 May 1995, the Court
of Appeals granted their motion and issued a writ of
preliminary injunction, which effectively enjoined the SEC
from filing any criminal, civil or administrative case
against the respondents herein.17
On 23 October 1995, the SEC filed a Motion for Leave to
Quash SEC Omnibus Orders so that the case may be
investi-
_______________
13Id., at pp. 152-162.

14Id., at p. 44.
15Id., at pp. 1-37.
16CA Rollo, pp. 214-230.
17Id., at pp. 237-238.
375
VOL. 567, OCTOBER 6, 2008 375

gated by the PED in accordance with the SEC Rules and

Presidential Decree No. 902-A, and not by the special body
whose creation the SEC had earlier ordered.18
The Court of Appeals promulgated a Decision19 on 20
August 1998. It determined that there were no
implementing rules and regulations regarding disclosure,
insider trading, or any of the provisions of the Revised
Securities Acts which the respondents allegedly violated.
The Court of Appeals likewise noted that it found no
statutory authority for the SEC to initiate and file any suit
for civil liability under Sections 8, 30 and 36 of the Revised
Securities Act. Thus, it ruled that no civil, criminal or
administrative proceedings may possibly be held against
the respondents without violating their rights to due
process and equal protection. It further resolved that
absent any implementing rules, the SEC cannot be allowed
to quash the assailed Omnibus Orders for the sole purpose
of re-filing the same case against the respondents.20
The Court of Appeals further decided that the Rules of
Practice and Procedure Before the PED, which took effect
on 14 April 1990, did not comply with the statutory
requirements contained in the Administrative Code of
1997. Section 8, Rule V of the Rules of Practice and
Procedure Before the PED affords a party the right to be
present but without the right to cross-examine witnesses
presented against him, in violation of Section 12(3),
Chapter 3, Book VII of the Administrative Code.21
In the dispositive portion of its Decision, dated 20
August 1998, the Court of Appeals ruled that:22
_______________
18Id., at pp. 269-270.

19Penned by Associate Justice Emeterio C. Cui with Associate Justices
Angelina Sandoval-Gutierrez and Conrado M. Vasquez, Jr., concurring.
Rollo, pp. 31-38.
20Id., at pp. 35-36.
21Id., at p. 36.
22Id., at p. 37.
376

WHEREFORE, [herein petitioner SECs] Motion for Leave to

Quash SEC Omnibus Orders is hereby DENIED. The petition for
certiorari, prohibition and mandamus is GRANTED.
Consequently, all proceedings taken against [herein respondents]
in this case, including the Omnibus Orders of January 25, 1995
and March 30, 1995 are declared null and void. The writ of
preliminary injunction is hereby made permanent and,
accordingly, [SEC] is hereby prohibited from taking
cognizance or initiating any action, be they civil, criminal, or
administrative against [respondents] with respect to Sections 8
(Procedure for Registration), 30 (Insiders duty to disclose when
trading) and 36 (Directors, Officers and Principal Stockholders) in
relation to Sections 46 (Administrative sanctions) 56 (Penalties)
44 (Liabilities of Controlling persons) and 45 (Investigations,
injunctions and prosecution of offenses) of the Revised Securities
Act and Section 144 (Violations of the Code) of the Corporation
Code. (Emphasis provided.)
The SEC filed a Motion for Reconsideration, which the

Court of Appeals denied in a Resolution23 issued on 30
September 1998.
Hence, the present petition, which relies on the
following grounds:24
I
THE COURT OF APPEALS ERRED WHEN IT DENIED
PETITIONERS MOTION FOR LEAVE TO QUASH THE
ASSAILED SEC OMNIBUS ORDERS DATED JANUARY 25
AND MARCH 30, 1995.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT
THERE IS NO STATUTORY AUTHORITY WHATSOEVER FOR
PETITIONER SEC TO INITIATE AND FILE ANY SUIT BE
THEY CIVIL, CRIMINAL OR ADMINISTRATIVE AGAINST
RESPONDENT CORPORATION AND ITS DIRECTORS WITH
RESPECT TO SECTION 30 (INSIDERS DUTY TO DISCOLSED
[sic] WHEN
_______________
23Id., at pp. 40-41.

24Id., at p. 14.
377
VOL. 567, OCTOBER 6, 2008 377

Corporation
TRADING) AND 36 (DIRECTORS OFFICERS AND PRINCIPAL

STOCKHOLDERS) OF THE REVISED SECURITIES ACT; AND
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT
RULES OF PRACTICE AND PROSECUTION BEFORE THE
PED AND THE SICD RULES OF PROCEDURE ON
ADMINISTRATIVE ACTIONS/PROCEEDINGS25 ARE INVALID
AS THEY FAIL TO COMPLY WITH THE STATUTORY
REQUIREMENTS CONTAINED IN THE ADMINISTRATIVE
CODE OF 1987.

The petition is impressed with merit.
Before discussing the merits of this case, it should be
noted that while this case was pending in this Court,
Republic Act No. 8799, otherwise known as the Securities
Regulation Code, took effect on 8 August 2000. Section 8 of
Presidential Decree No. 902-A, as amended, which created
the PED, was already repealed as provided for in Section
76 of the Securities Regulation Code:
SEC. 76. Repealing Clause.The Revised Securities Act

(Batas Pambansa Blg. 178), as amended, in its entirety, and
Sections 2, 4 and 8 of Presidential Decree 902-A, as amended, are
hereby repealed. All other laws, orders, rules and regulations, or
parts thereof, inconsistent with any provision of this Code are
hereby repealed or modified accordingly.
Thus, under the new law, the PED has been abolished,
and the Securities Regulation Code has taken the place of
the Revised Securities Act.
The Court now proceeds with a discussion of the present
case.
_______________
25The Securities Investigation and Clearing Department (SICD) Rules

of Procedure on Administrative Actions/Proceedings took effect on 29
December 1996, after the violations allegedly took place.
378

I. Sections 8, 30 and 36 of the Revised

Securities Act do not require the
enactment of implementing rules to
make them binding and effective.
The Court of Appeals ruled that absent any
implementing rules for Sections 8, 30 and 36 of the Revised
Securities Act, no civil, criminal or administrative actions
can possibly be had against the respondents without
violating their right to due process and equal protection,
citing as its basis the case Yick Wo v. Hopkins.26 This is
untenable.
In the absence of any constitutional or statutory
infirmity, which may concern Sections 30 and 36 of the
Revised Securities Act, this Court upholds these provisions
as legal and binding. It is well settled that every law has in
its favor the presumption of validity. Unless and until a
specific provision of the law is declared invalid and
unconstitutional, the same is valid and binding for all
intents and purposes.27 The mere absence of implementing
rules cannot effectively invalidate provisions of law, where
a reasonable construction that will support the law may be
given. In People v. Rosenthal,28 this Court ruled that:
In this connection we cannot pretermit reference to the rule that

legislation should not be held invalid on the ground of
uncertainty if susceptible of any reasonable construction that will
support and give it effect. An Act will not be declared inoperative
and ineffectual on the ground that it furnishes no adequate means
to secure the purpose for which it is passed, if men of common
sense and reason can devise and provide the means, and all the
instrumentalities neces-
_______________
26118 U.S. 356.

27 Secretary of the Department of Transportation and Communications v.
Mabalot, 428 Phil. 154, 164; 378 SCRA 128, 138 (2002); Larin v. Executive
Secretary, 345 Phil. 962, 979; 280 SCRA 713, 730 (1997).
2868 Phil. 328, 348 (1939).
379
VOL. 567, OCTOBER 6, 2008 379

Corporation
sary for its execution are within the reach of those intrusted
therewith. (25 R.C.L., pp. 810, 811)
In Garcia v. Executive Secretary,29 the Court underlined

In Garcia v. Executive Secretary,29 the Court underlined
the importance of the presumption of validity of laws and
the careful consideration with which the judiciary strikes
down as invalid acts of the legislature:
The policy of the courts is to avoid ruling on constitutional

questions and to presume that the acts of the political
departments are valid in the absence of a clear and unmistakable
showing to the contrary. To doubt is to sustain. This presumption
is based on the doctrine of separation of powers which enjoins
upon each department a becoming respect for the acts of the other
departments. The theory is that as the joint act of Congress and
the President of the Philippines, a law has been carefully studied
and determined to be in accordance with the fundamental law
before it was finally enacted.
The necessity for vesting administrative authorities

with power to make rules and regulations is based on the
impracticability of lawmakers providing general
regulations for various and varying details of
management.30 To rule that the absence of implementing
rules can render ineffective an act of Congress, such as the
Revised Securities Act, would empower the administrative
bodies to defeat the legislative will by delaying the
implementing rules. To assert that a law is less than a law,
because it is made to depend on a future event or act, is to
rob the Legislature of the power to act wisely for the public
welfare whenever a law is passed relating to a state of
affairs not yet developed, or to things future and impossible
to fully know.31 It is well-established that administrative
authorities have the power to promulgate rules and
regulations to implement a given statute and to effectuate
its policies, provided such rules and regulations conform to
the terms and standards prescribed by the statute as well
as purport to
_______________
29G.R. No. 100883, 2 December 1991, 204 SCRA 516, 523.

30Geukeko v. Araneta, 102 Phil. 706, 712-713 (1957).
31Calalang v. Williams, 70 Phil. 726, 733 (1940).
380

carry into effect its general policies. Nevertheless, it is

undisputable that the rules and regulations cannot assert
for themselves a more extensive prerogative or deviate
from the mandate of the statute.32 Moreover, where the
statute contains sufficient standards and an unmistakable
intent, as in the case of Sections 30 and 36 of the Revised
Securities Act, there should be no impediment to its
implementation.
The reliance placed by the Court of Appeals in Yick Wo
v. Hopkins33 shows a glaring error. In the cited case, this
Court found unconstitutional an ordinance which gave the
board of supervisors authority to refuse permission to carry
on laundries located in buildings that were not made of
brick and stone, because it violated the equal protection
clause and was highly discriminatory and hostile to
Chinese residents and not because the standards provided
therein were vague or ambiguous.
This Court does not discern any vagueness or ambiguity
in Sections 30 and 36 of the Revised Securities Act,
such that the acts proscribed and/or required would not be
understood by a person of ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insiders duty to disclose when trading.(a) It

shall be unlawful for an insider to sell or buy a security of the
issuer, if he knows a fact of special significance with respect to the
issuer or the security that is not generally available, unless (1)
the insider proves that the fact is generally available or (2) if the
other party to the transaction (or his agent) is identified, (a) the
insider proves that the other party knows it, or (b) that other
party in fact knows it from the insider or otherwise.
_______________
32Del Mar v. The Philippine Veterans Administration, 151-A Phil. 792, 802; 51
SCRA 340, 349 (1973).
33Supra note 23.
381
VOL. 567, OCTOBER 6, 2008 381

Corporation
(b) Insider means (1) the issuer, (2) a director or officer of,
or a person controlling, controlled by, or under common control
with, the issuer, (3) a person whose relationship or former
relationship to the issuer gives or gave him access to a fact of
special significance about the issuer or the security that is not
generally available, or (4) a person who learns such a fact from
any of the foregoing insiders as defined in this subsection, with
knowledge that the person from whom he learns the fact is such
an insider.
(c) A fact is of special significance if (a) in addition to being
material it would be likely, on being made generally available, to
affect the market price of a security to a significant extent, or (b) a
reasonable person would consider it especially important under
the circumstances in determining his course of action in the light
of such factors as the degree of its specificity, the extent of its
difference from information generally available previously, and its
nature and reliability.
(d) This section shall apply to an insider as defined in
subsection (b) (3) hereof only to the extent that he knows of a fact
of special significance by virtue of his being an insider.
The provision explains in simple terms that the insiders

misuse of nonpublic and undisclosed information is the
gravamen of illegal conduct. The intent of the law is the
protection of investors against fraud, committed when an
insider, using secret information, takes advantage of an
uninformed investor. Insiders are obligated to disclose
material information to the other party or abstain from
trading the shares of his corporation. This duty to disclose
or abstain is based on two factors: first, the existence of a
relationship giving access, directly or indirectly, to
information intended to be available only for a corporate
purpose and not for the personal benefit of anyone; and
second, the inherent unfairness involved when a party
takes advantage of such information knowing it is
unavailable to those with whom he is dealing.34
In the United States (U.S.), the obligation to disclose or
abstain has been traditionally imposed on corporate
insiders,
_______________
34In the Matter of Cady, Roberts & Co., 40 S.E.C. 907 (1961).
382

particularly officers, directors, or controlling stockholders,

but that definition has since been expanded.35 The term
insiders now includes persons whose relationship or
former relationship to the issuer gives or gave them access
to a fact of special significance about the issuer or the
security that is not generally available, and one who learns
such a fact from an insider knowing that the person from
whom he learns the fact is such an insider. Insiders have
the duty to disclose material facts which are known to
them by virtue of their position but which are not known to
persons with whom they deal and which, if known, would
affect their investment judgment. In some cases, however,
there may be valid corporate reasons for the nondisclosure
of material information. Where such reasons exist, an
issuers decision not to make any public disclosures is not
ordinarily considered as a violation of insider trading. At
the same time, the undisclosed information should not be
improperly used for non-corporate purposes, particularly to
disadvantage other persons with whom an insider might
transact, and therefore the insider must abstain from
entering into transactions involving such securities.36
Respondents further aver that under Section 30 of the
Revised Securities Act, the SEC still needed to define the
following terms: material fact, reasonable person,
nature and reliability and generally available.37
In determining whether or not these terms are vague, these
terms must be evaluated in the context of Section 30 of the
Revised Securties Act. To fully understand how the terms
were used in
_______________
35 Id., citing H.R. Rep. No. 1383, 73rd Cong., 2d Sess. 13 (1934); S.
Rep. No.792, 73rd Cong., 2d Sess. 9 (1934). A significant purpose of the
Exchange Act was to eliminate the idea that the use of inside information
for personal advantage was a normal emolument of corporate office.
36 In the Matter of Investors Management Co., Inc., 44 SEC 633, 29
July 1971; Securities and Exchange Commission v. Texas Gulf Sulfur Co.,
401 F. 2d 833, 13 August 1968.
37Rollo, p. 459.
383
VOL. 567, OCTOBER 6, 2008 383

the aforementioned provision, a discussion of what the law

recognizes as a fact of special significance is required, since
the duty to disclose such fact or to abstain from any
transaction is imposed on the insider only in connection
with a fact of special significance.
Under the law, what is required to be disclosed is a fact
of special significance which may be (a) a material fact
which would be likely, on being made generally available,
to affect the market price of a security to a significant
extent, or (b) one which a reasonable person would consider
especially important in determining his course of action
with regard to the shares of stock.
(a) Material FactThe concept of a material fact is
not a new one. As early as 1973, the Rules Requiring
Disclosure of Material Facts by Corporations Whose
Securities Are Listed In Any Stock Exchange or
Registered/Licensed Under the Securities Act, issued by
the SEC on 29 January 1973, explained that [a] fact is
material if it induces or tends to induce or otherwise affect
the sale or purchase of its securities. Thus, Section 30 of
the Revised Securities Act provides that if a fact affects the
sale or purchase of securities, as well as its price, then the
insider would be required to disclose such information to
the other party to the transaction involving the securities.
This is the first definition given to a fact of special
significance.
(b.1) Reasonable PersonThe second definition
given to a fact of special significance involves the judgment
of a reasonable person. Contrary to the allegations of the
respondents, a reasonable person is not a problematic
legal concept that needs to be clarified for the purpose of
giving effect to a statute; rather, it is the standard on
which most of our legal doctrines stand. The doctrine on
negligence uses the discretion of the reasonable man as
the standard.38 A pur-
_______________
38 Negligence is defined as the omission to do something which a

reasonable man, guided by those considerations which ordinarily
384

chaser in good faith must also take into account facts which
put a reasonable man on his guard.39 In addition, it is the
belief of the reasonable and prudent man that an offense
was committed that sets the criteria for probable cause for
a warrant of arrest.40 This Court, in such cases,
differentiated the reasonable and prudent man from a
person with training in the law such as a prosecutor or a
judge, and identified him as the average man on the
street, who weighs facts and circumstances without
resorting to the calibrations of our technical rules of
evidence of which his knowledge is nil. Rather, he relies on
the calculus of common sense of which all reasonable men
have in abundance.41 In the same vein, the U.S. Supreme
Court similarly determined its standards by the actual
significance in the deliberations of a reasonable investor,
when it ruled in TSC Industries, Inc. v. Northway, Inc.,42
that the determination of materiality requires delicate
assessments of the inferences a reasonable shareholder
would draw from a given set of facts and the significance of
those inferences to him.
(b.2) Nature and ReliabilityThe factors affecting
the second definition of a fact of special significance,
which is of such importance that it is expected to affect the
judgment of a reasonable man, were substantially lifted
from a test of mate-
_______________
regulate the conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would not do. (Emphasis provided.)
McKee v. Intermediate Appellate Court, G.R. Nos. 68102-03, 16 July 1992,
211 SCRA 517, 539, citing Layugan v. Intermediate Appellate Court, G.R.
No. L-73998, 14 November 1988, 167 SCRA 363, 373.
39 Dela Cruz v. Intermediate Appellate Court, G.R. No. L-72981, 29

January 1988, 157 SCRA 660, 671 and Balatbat v. Court of Appeals, 329
Phil. 858, 874; 261 SCRA 128, 142 (1996).
40Webb v. Hon. De Leon, 317 Phil. 758, 779; 247 SCRA 652, 668 (1995).
41Id., at p. 780; p. 668.
4248 L ed 2d 757, 766 (1976).
385
VOL. 567, OCTOBER 6, 2008 385

riality pronounced in the case In the Matter of Investors

Management Co., Inc.:43
Among the factors to be considered in determining whether

information is material under this test are the degree of its
specificity, the extent to which it differs from information
previously publicly disseminated, and its reliability in light of its
nature and source and the circumstances under which it was
received.
It can be deduced from the foregoing that the nature and

reliability of a significant fact in determining the course of
action a reasonable person takes regarding securities must
be clearly viewed in connection with the particular
circumstances of a case. To enumerate all circumstances
that would render the nature and reliability of a fact to be
of special significance is close to impossible. Nevertheless,
the proper adjudicative body would undoubtedly be able to
determine if facts of a certain nature and reliability can
influence a reasonable persons decision to retain, sell or
buy securities, and thereafter explain and justify its factual
findings in its decision.
(c) Materiality ConceptA discussion of the
materiality concept would be relevant to both a material
fact which would affect the market price of a security to a
significant extent and/or a fact which a reasonable person
would consider in determining his or her cause of action
with regard to the shares of stock. Significantly, what is
referred to in our laws as a fact of special significance is
referred to in the U.S. as the materiality concept and the
latter is similarly not provided with a precise definition. In
Basic v. Levinson,44 the U.S. Supreme Court cautioned
against confining materiality to a rigid formula, stating
thus:
A bright-line rule indeed is easier to follow than a standard that

requires the exercise of judgment in the light of all the circum-
_______________
43Supra note 33.

4499 L ed 2d 194, 211 (1988).
386

Corporation
stances. But ease of application alone is not an excuse for ignoring

the purposes of the Securities Act and Congress policy decisions.
Any approach that designates a single fact or occurrence as
always determinative of an inherently fact-specific finding such as
materiality, must necessarily be overinclusive or underinclusive.
Moreover, materiality will depend at any given time upon

a balancing of both the indicated probability that the event
will occur and the anticipated magnitude of the event in
light of the totality of the company activity.45 In drafting
the Securities Act of 1934, the U.S. Congress put emphasis
on the limitations to the definition of materiality:
Although the Committee believes that ideally it would be

desirable to have absolute certainty in the application of the
materiality concept, it is its view that such a goal is illusory and
unrealistic. The materiality concept is judgmental in nature
and it is not possible to translate this into a numerical
formula. The Committees advice to the [SEC] is to avoid
this quest for certainty and to continue consideration of
materiality on a case-by-case basis as disclosure problems
are identified. House Committee on Interstate and Foreign
Commerce, Report of the Advisory Committee on Corporate
Disclosure to the Securities and Exchange Commission, 95th
Cong., 1st Sess., 327 (Comm.Print 1977). (Emphasis provided.)46
(d) Generally AvailableSection 30 of the Revised

Securities Act allows the insider the defense that in a
transaction of securities, where the insider is in possession
of facts of special significance, such information is
generally available to the public. Whether information
found in a newspaper, a specialized magazine, or any
cyberspace media be sufficient for the term generally
available is a matter which may be adjudged given the
particular circumstances of the case. The standards cannot
remain at a standstill. A medium, which is
_______________
45Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401

F.2d 833, 849 (1968).
46Basic v. Levinson, supra note 41 at p. 211.
387
VOL. 567, OCTOBER 6, 2008 387

widely used today was, at some previous point in time,

inaccessible to most. Furthermore, it would be difficult to
approximate how the rules may be applied to the instant
case, where investigation has not even been started.
Respondents failed to allege that the negotiations of their
agreement with GHB were made known to the public
through any form of media for there to be a proper
appreciation of the issue presented.
Section 36(a) of the Revised Securities Act
As regards Section 36(a) of the Revised Securities Act,
respondents claim that the term beneficial ownership is
vague and that it requires implementing rules to give effect
to the law. Section 36(a) of the Revised Securities Act is a
straightforward provision that imposes upon (1) a
beneficial owner of more than ten percent of any class of
any equity security or (2) a director or any officer of the
issuer of such security, the obligation to submit a
statement indicating his or her ownership of the issuers
securities and such changes in his or her ownership
thereof. The said provision reads:
Sec. 36. Directors, officers and principal stockholders.

(a) Every person who is directly or indirectly the beneficial owner
of more than ten per centum of any [class] of any equity security
which is registered pursuant to this Act, or who is [a] director or
an officer of the issuer of such security, shall file, at the time of
the registration of such security on a securities exchange or by the
effective date of a registration statement or within ten days after
he becomes such a beneficial owner, director or officer, a
statement with the Commission and, if such security is registered
on a securities exchange, also with the exchange, of the amount of
all equity securities of such issuer of which he is the beneficial
owner, and within ten days after the close of each calendar month
thereafter, if there has been a change in such ownership during
such month, shall file with the Commission, and if such security
is registered on a securities exchange, shall also file with the
exchange, a statement indicating his ownership at the close of the
calendar month and such changes
388

Corporation
in his ownership as have occurred during such calendar month.

(Emphasis provided.)
Section 36(a) refers to the beneficial owner. Beneficial

owner has been defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust
property (also called equitable ownership); and second, to
refer to the power of a corporate shareholder to buy or sell
the shares, though the shareholder is not registered in the
corporations books as the owner. Usually, beneficial
ownership is distinguished from naked ownership, which is
the enjoyment of all the benefits and privileges of
ownership, as against possession of the bare title to
property.47
Even assuming that the term beneficial ownership was
vague, it would not affect respondents case, where the
respondents are directors and/or officers of the corporation,
who are specifically required to comply with the reportorial
requirements under Section 36(a) of the Revised Securities
Act. The validity of a statute may be contested only by one
who will sustain a direct injury as a result of its
enforcement.48
Sections 30 and 36 of the Revised Securities Act were
enacted to promote full disclosure in the securities market
and prevent unscrupulous individuals, who by their
positions obtain non-public information, from taking
advantage of an uninformed public. No individual would
invest in a market which can be manipulated by a limited
number of corporate insiders. Such reaction would stifle, if
not stunt, the growth of the securities market. To avert the
occurrence of such an event, Section 30 of the Revised
Securities Act prevented the unfair use of non-public
information in securities transac-
_______________
47 La Bugal-BLaan Tribal Association, Inc. v. Ramos, G.R. No.

127882, 1 December 2004, 445 SCRA 1, 155-156, citing Blacks Law
Dictionary, 5th edition.
48Gonzales v. Hon. Narvasa, 392 Phil. 518, 528; 337 SCRA 733, 742
(2000), citing Sanidad v. Commission on Elections, G.R. No. L-44640, 12
October 1976, 73 SCRA 333, 358.
389
VOL. 567, OCTOBER 6, 2008 389

tions, while Section 36 allowed the SEC to monitor the

transactions entered into by corporate officers and directors
as regards the securities of their companies.
In the case In the Matter of Investors Management Co.,49
it was cautioned that the broad language of the anti-fraud
provisions, which include the provisions on insider
trading, should not be circumscribed by fine distinctions
and rigid classifications. The ambit of anti-fraud
provisions is necessarily broad so as to embrace the infinite
variety of deceptive conduct.50
In Tatad v. Secretary of Department of Energy,51 this
Court brushed aside a contention, similar to that made by
the respondents in this case, that certain words or phrases
used in a statute do not set determinate standards,
declaring that:
Petitioners contend that the words as far as practicable,

declining and stable should have been defined in R.A. No. 8180
as they do not set determinate and determinable standards. This
stubborn submission deserves scant consideration. The dictionary
meanings of these words are well settled and cannot confuse men
of reasonable intelligence. xxx. The fear of petitioners that these
words will result in the exercise of executive discretion that will
run riot is thus groundless. To be sure, the Court has sustained
the validity of similar, if not more general standards in other
cases.
Among the words or phrases that this Court upheld as

valid standards were simplicity and dignity,52 public
interest,53 and interests of law and order.54
_______________
49Supra note 33.

50 Securities and Exchange Commission v. Capital Gains Research
Bureau, Inc., 11 L ed 2d 237, 247 (1963).
51346 Phil. 321, 362; 282 SCRA 337 (1997).
52Balbuna v. Hon. Secretary of Education, 110 Phil. 150, 154 (1960).
53People v. Rosenthal, 68 Phil. 328, 342 (1939).
54Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 702 (1919).
390

The Revised Securities Act was approved on 23

February 1982. The fact that the Full Disclosure Rules
were promulgated by the SEC only on 24 July 1996 does
not render ineffective in the meantime Section 36 of the
Revised Securities Act. It is already unequivocal that the
Revised Securities Act requires full disclosure and the Full
Disclosure Rules were issued to make the enforcement of
the law more consistent, efficient and effective. It is equally
reasonable to state that the disclosure forms later provided
by the SEC, do not, in any way imply that no compliance
was required before the forms were provided. The
effectivity of a statute which imposes reportorial
requirements cannot be suspended by the issuance of
specified forms, especially where compliance therewith may
be made even without such forms. The forms merely made
more efficient the processing of requirements already
identified by the statute.
For the same reason, the Court of Appeals made an
evident mistake when it ruled that no civil, criminal or
administrative actions can possibly be had against the
respondents in connection with Sections 8, 30 and 36 of the
Revised Securities Act due to the absence of implementing
rules. These provisions are sufficiently clear and complete
by themselves. Their requirements are specifically set out,
and the acts which are enjoined are determinable. In
particular, Section 855
_______________
55Sec. 8. Procedure for registration.(a) All securities required

to be registered under subsection (a) of Section four of this Act shall be
registered through the filing by the issuer or by any dealer or underwriter
interested in the sale thereof, in the office of the Commission, of a sworn
registration statement with respect to such securities, containing or
having attached thereto, the following:
(1) Name of issuer and, if incorporated, place of incorporation.
(2) The location of the issuers principal business office, and if such
issuer is a non-resident or its place of office is outside of the Philippines,
the name and address of its agent in the Philippines authorized to receive
notice.
(3) The names and addresses of the directors or persons performing
similar functions, and the chief executive, financial and accounting
officers, chosen or to be chosen, if the issuer be a corporation, association,
trust, or other entity; of all the partners, if the issuer be a partnership;
and of the issuer, if the issuer be an individual; and of the promoters in
the case of a business to be formed.
(4) The names and addresses of the underwriters.
391
VOL. 567, OCTOBER 6, 2008 391

of the Revised Securities Act is a straightforward

enumeration of the procedure for the registration of
securities and the particular matters which need to be
reported in the registra-
_______________
(5) The general character of the business actually transacted or to be

transacted by, and the organization and financial structure of, the issuer
including identities of all companies controlling, controlled by or
commonly controlled with the issuer.
(6) The names and addresses of all persons, if any, owning of record or
beneficially, if known, more than ten (10%) per centum in the aggregate of
the outstanding stock of the issuer as of a date within twenty days prior to
the filing of the registration statement.
(7) The amount of securities of the issuer held by any person specified
in subparagraphs (3), (4), and (6) of this subsection, as of a date within
twenty days prior to the filing of the registration statement, and, if
possible, as of one year prior thereto, and the amount of the securities, for
which the registration statement is filed, to which such persons have
indicated their intention to subscribe.
(8) A statement of the capitalization of the issuer and of all companies
controlling, controlled by or commonly controlled with the issuer,
including the authorized and outstanding amounts of its capital stock and
the proportion thereof paid up; the number and classes of shares in which
such capital stock is divided; par value thereof, or if it has no par value,
the stated or assigned value thereof; a description of the respective voting
rights, preferences, conversion and exchange rights, rights to dividends,
profits, or capital of each class, with respect to each other class, including
the retirement and liquidation rights or values thereof.
(9) A copy of the security for the registration of which application is
made.
(10) A copy of any circular, prospectus, advertisement, letter, or
communication to be used for the public offering of the security.
(11) A statement of the securities, if any, covered by options
outstanding or to be created in connection with the security to be offered,
together with the names and addresses of all persons, if any, to be allotted
more than ten (10%) per centum in the aggregate of such options.
(12) The amount of capital stock of each class issued or included in
the shares of stock to be offered.
(13) The amount of the funded indebtedness outstanding and to be
created by the security to be offered, with a brief statement of the date,
maturity, and character of such debt, rate of interest, character or
amortization provisions, other terms and conditions thereof and the
security, if any, therefor. If substitution of any security is permissible, a
summarized statement of the conditions under which such substitution is
permitted. If substitution is permissible without notice, a specific
statement to that effect.
(14) The specific purposes in detail and the approximate amounts to
be devoted to such purposes, so far as determinable, for which the security
to be offered is to supply funds, and if the funds are to be raised in part
from other sources, the amounts and the sources thereof.
(15) The remuneration, paid or estimated to be paid, by the issuer or
its predecessor, directly or indirectly, during the past year and the
ensuing year to (a) the directors or persons performing similar functions,
and (b) its officers and other persons, naming them whenever such
remuneration exceeded sixty thousand (P60,000.00) pesos during any such
year.
392

tion statement thereof. The Decision, dated 20 August

1998, provides no valid reason to exempt the respondent
IRC from such requirements. The lack of implementing
rules cannot
_______________
(16) The amount of issue of the security to be offered.

(17) The estimated net proceeds to be derived from the security to be
offered.
(18) The price at which the security is proposed to be offered to the
public or the method by which such price is computed and any variation
therefrom at which any portion of such security is proposed to be offered
to persons or classes of persons, other than the underwriters, naming
them or specifying the class. A variation in price may be proposed prior to
the date of the public offering of the security by filing an amended
registration statement.
(19) All commissions or discounts paid or to be paid, directly or
indirectly, by the issuer to the underwriters in respect of the sale of the
security to be offered. Commissions shall include all cash, securities,
contracts, or anything of value, paid, to be set aside, or disposed of, or
understanding with or for the benefit of any other person in which any
underwriter is interested, made in connection with the sale of such
security. A commission paid or to be paid in connection with the sale of
such security by a person in which the issuer has an interest or which is
controlled by, or under common control with, the issuer shall be deemed to
have been paid by the issuer. Where any such commission is paid, the
amount of such commission paid to each underwriter shall be stated.
(20) The amount or estimated amounts, itemized in reasonable detail,
of expenses, other than commission specified in the next preceding
paragraph, incurred or to be incurred by or for the account of the issuer in
connection with the sale of the security to be offered or properly
chargeable thereto, including legal, engineering, certification,
authentication, and other charges.
(21) The net proceeds derived from any security sold by the issuer
during the two years preceding the filing of the registration statement, the
price at which such security was offered to the public, and the names of
the principal underwriters of such security.
(22) Any amount paid within two years preceding the filing of the
registration statement or intended to be paid to any promoter and the
consideration for any such payment.
(23) The names and addresses of the vendors and the purchase price
of any property or goodwill, acquired or to be acquired, not in the ordinary
course of business, which is to be defrayed in whole or in part from the
proceeds of the security to be offered, the amount of any commission
payable to any person in connection with such acquisition, and the name
or names of such person or persons, together with any expense incurred or
to be incurred in connection with such acquisition, including the cost of
borrowing money to finance such acquisition.
(24) Full particulars of the nature and extent of the interest, if any, of
every director, principal executive officer, and of every stockholder holding
more than ten (10%) per centum in the aggregate of the stock of the
issuer, in any property acquired, not in the ordinary course of business of
the issuer, within two years preceding the filing of the registration
statement or proposed to be acquired at such date.
(25) The names and addresses of independent counsel who have
passed on the legality of the issue.
393
VOL. 567, OCTOBER 6, 2008 393

suspend the effectivity of these provisions. Thus, this Court

cannot find any cogent reason to prevent the SEC from
exer-
_______________
(26) Dates of and parties to, and the general effect concisely stated of
every material contract made, not in the ordinary course of business,
which contract is to be executed in whole or in part at or after the filing of
the registration statement or which has been executed not more than two
years before such filing. Any management contract or contract providing
for special bonuses or profit-sharing arrangements, and every material
patent or contract for a material patent right, and every contract by or
with a public utility company or an affiliate thereof, providing for the
giving or receiving of technical or financial advice or service shall be
deemed a material contract.
Any contract, whether or not made in the ordinary course of business
with any stockholder, whether a natural or juridical person, owning more
than ten (10%) per centum of the shares of the issuer shall be deemed a
material contract for the purpose of this Act.
(27) A balance sheet as of a date not more than ninety days prior to
the date of the filing of the registration statement showing all of the
assets of the issuer, the nature and cost thereof, whenever determinable
with intangible items segregated, including any loan to or from any
officer, director, stockholder or person directly or indirectly controlling or
controlled by the issuer, or person under direct or indirect common control
with the issuer. In the event any such assets consist of shares of stock in
other companies, the balance sheet and profit and loss statements of such
companies for the past three years shall likewise be enclosed. All the
liabilities of the issuer, including surplus of the issuer, showing how and
from what sources such surplus was created, all as of a date not more than
ninety days prior to the filing of the registration statement. If such
statement is not certified by an independent certified public accountant, in
addition to the balance sheet required to be submitted under this
schedule, a similar detailed balance sheet of the assets and liabilities of
the issuer, certified by an independent certified public accountant, of a
date not more than one year prior to the filing of the registration
statement, shall be submitted.
(28) A profit and loss statement of the issuer showing earnings and
income, the nature and source thereof, and the expenses and fixed charges
in such detail and such form as the Commission shall prescribe for the
latest fiscal year for which such statement is available and for the two
preceding fiscal years, year by year, or, if such issuer has been in actual
business for less than three years, then for such time as the issuer has
been in actual business, year by year. If the date of the filing of the
registration statement is more than six months after the close of the last
fiscal year, a statement from such closing date to the latest practicable
date. Such statement shall show what the practice of the issuer has been
during the three years or lesser period as to the character of the charges,
dividends or other distributions made against its various surplus
accounts, and as to depreciation, depletion, and maintenance charges, and
if stock dividends or avails from the sale of rights have been credited to
income, they shall be shown separately with statement of the basis upon
which credit is computed. Such statement shall also differentiate between
recurring and nonrecurring income and between any investment and
operating income. Such statement shall be certified by an independent
certified public accountant.
(29) Any liabilities of the issuer to companies controlling or controlled
by the issuer shall be disclosed in full detail as to use of the proceeds
thereof, the maturity and repayment schedule, nature of security thereof,
the rate of interest and other terms and conditions thereof. If the
proceeds, or any part of the proceeds, of the security to be
394
cising its authority to investigate respondents for violation

of Section 8 of the Revised Securities Act.
_______________
issued is to be applied directly or indirectly to the purchase of any

business, a profit and loss statement of such business, certified by an
independent certified public accountant, meeting the requirements of
subparagraph (28) of this subsection, for the three preceding fiscal years,
together with a balance sheet, similarly certified, of such business,
meeting the requirements of subparagraph (27) hereof of a date not more
than ninety days prior to the filing of the registration statement or at the
date such business was acquired by the issuer more than ninety days prior
to the filing of the registration statement.
(30) A copy of any agreement or agreements or, if identical

agreements are used, the forms thereof made with any underwriter,
including all contracts and agreements referred to in subparagraph (19)
hereof.
(31) A copy of the opinion or opinions of independent counsel in
respect to the legality of the issue.
(32) A copy of all material contracts referred to in subparagraph (26)
hereof, but no disclosure shall be required by the Commission of any
portion of any such contract if the disclosure of such portion would impair
the value of the contract and would not be necessary for the protection of
the investors.
(33) A detailed statement showing the items of cash, property,
services, patents, goodwill, and any other consideration for which
securities have been or are to be issued in payment.
(34) The amount of cash to be paid as promotion fees, or of capital
stock which is to be set aside and disposed of as promotion stock, and a
statement of all stock issued from time to time as promotion stock.
(35) In connection with securities issued by a person engaged in the
business of developing, exploiting or operating mineral claims, a sworn
statement of a mining engineer stating the ore possibilities of the mine
and such other information in connection therewith as will show the
quality of the ore in such claims, and the unit cost of extracting it.
(36) Unless previously filed and registered with the Commission and
brought up to date:
(a) A copy of its articles of incorporation with all amendments
thereof and its existing by-laws or instruments corresponding
thereto, whatever the name, if the issuer be a corporation;
(b) A copy of all instruments by which the trust is created or
declared and in which it is accepted and acknowledged, if the issuer
is a trust;
(c) A copy of its articles of partnership or association and all
the papers pertaining to its organization, if the issuer is a
partnership, unincorporated association, joint-stock company,
syndicate, or any other form of organization.
(37) A copy of the underlying agreements or indentures affecting any
stock, bonds, or debentures offered or to be offered by the issuer and
outstanding on the part of companies controlling or controlled by the
issuer.
395
VOL. 567, OCTOBER 6, 2008 395

II. The right to cross-examination is not

absolute and cannot be demanded
during investigative proceedings be-
fore the PED.
In its assailed Decision dated 20 August 1998, the Court
of Appeals pronounced that the PED Rules of Practice and
Pro-
_______________
(38) Where the issuer or registrant is not formed, organized and

existing under the laws of the Philippines or is not domiciled in the
Philippines, a written power of attorney, certified and authenticated in
accordance with law, designating some individual person, who must be a
resident of the Philippines, on whom any summons and other legal
processes may be served in all actions or other legal proceedings against
him, and consenting that service upon such resident agent shall be
admitted as valid and proper service upon the issuer or registrant, and if
at any time that service cannot be made upon such resident agent, service
shall be made upon the Commission.
Additional information or documents, including written information
from an expert, may be required, or anyone of the above requirements
may be dispensed with, depending on the necessity thereof for the
protection of the public investors, or their applicability to the class of
securities sought to be registered, as the case may be.
The registration statement shall be signed by the issuer, its principal
executive officer, its principal operating officer, its principal financial
officer, its comptroller or principal accounting officer or persons
performing similar functions. The written consent of the expert named as
having certified any part of the registration statement or any document
used in connection therewith shall also be filed.
Upon filing of the registration statement, the registrant shall pay to the
Commission a fee of not more than one-tenth of one per centum of the
maximum aggregate price at which such securities are proposed to be
offered and the fact of such filing shall be immediately published by the
Commission, at the expense of the registrant, in two newspapers of
general circulation in the Philippines, once a week for two consecutive
weeks, reciting that a registration statement for the sale of such security
has been filed with it, and that the aforesaid registration statement, as
well as the papers attached thereto, are open to inspection during
business hours, by interested parties, and copies thereof, photostatic or
otherwise, shall be furnished to every applicant at such reasonable charge
as the Commission may prescribe.
Any interested party may file an opposition to the registration within
ten days from the publication.
If after the completion of the aforesaid publication, the Commission
finds that the registration statement together with all the other papers
and documents attached thereto, is on its face complete and that the
requirements and conditions for the protection of the investors have been
complied with, and unless there are grounds to reject a registration
statement as herein provided, it shall as soon as feasible enter an order
making the registration effective, and issue to the registrant a permit
reciting that such person, its brokers or agents, are entitled to offer the
securities named in said certificate, with such terms and conditions as it
may impose in the public interest and for the protection of investors.
The Commission shall, however, advise the public that the issuance of
such permit shall not be deemed a finding by the Commission that the
registration statement is
396

cedure was invalid since Section 8, Rule V56 thereof failed

to provide for the parties right to cross-examination, in
violation of the Administrative Code of 1987 particularly
Section 12(3), Chapter 3, Book VII thereof. This ruling is
incorrect.
Firstly, Section 4, Rule I of the PED Rules of Practice
and Procedure, categorically stated that the proceedings
before the PED are summary in nature:
_______________
true and accurate on its face or that it does not contain an untrue
statement of fact or omit to state a material fact, or be held to mean that
the Commission has in any way given approval to the security included in
the registration statement. Every permit and any other statement,
printed or otherwise, for public consumption, that makes reference to such
permit shall clearly and distinctively state that the issuance thereof is
only permissive and does not constitute a recommendation or
endorsement of the securities permitted to be offered for sale. It shall be
unlawful to make, or cause to be made, to any prospective purchaser any
representation contrary to the foregoing.
Notwithstanding the foregoing, the Commission, for the guidance of

investors, may require issuers to submit their securities to rating by
securities rating agencies accredited by the Commission, to provide all
information necessary therefor, and to report such rating in the
registration statement and prospectus, if any, offering the securities.
If any change occurs in the facts set forth in the registration statement,
it shall be the obligation of the issuer, dealer or underwriter who filed the
original registration statement to submit to the Commission for approval
an amended registration statement.
The Commission, in its order, may fix the maximum amount of
commission or other form of remuneration to be paid in cash or otherwise,
directly or indirectly, for or in connection with the sale or offering for sale
of such securities in the Philippines and the maximum amount of
compensation which the issuer shall pay for mining claims and mineral
rights for which provision is made by the issuer for payment in cash or
securities. The amount of compensation which shall be paid the owner or
holder of such mining claims or mineral rights shall be a fair valuation
thereof, as may be fixed by the Commission, after consultation with the
Bureau of Mines, and after receiving such technical information as the
issuer or dealer or the owner or owners of such claims may care to submit
in the premises.
A copy of the order of the Commission making the registration effective,
together with the registration statement, shall be transmitted to the
exchange wherein the security may be listed and shall be available for
inspection by any interested party during reasonable hours on any
business day.
The order shall likewise be published, at the expense of the registrant,
once in a newspaper of general circulation within ten days from its
promulgation.
The same rules shall apply to any amendment to the registration
statement.
56Section 8. Order of Investigation.The parties shall be afforded an
opportunity to be present but without the right to examine or cross-
examine. If the parties so desire, they may submit questions to the
Hearing Officer which the latter may propound to the parties or witnesses
concerned.
397
VOL. 567, OCTOBER 6, 2008 397

Section 4. Nature of Proceedings.Subject to the

requirements of due process, proceedings before the PED shall
be summary in nature not necessarily adhering to or following the
technical rules of evidence obtaining in the courts of law. The
Rules of Court may apply in said proceedings in suppletory
character whenever practicable.
Rule V of the PED Rules of Practice and Procedure

further specified that:
Section 5. Submission of Documents.During the

preliminary conference/hearing, or immediately thereafter, the
Hearing Officer may require the parties to simultaneously submit
their respective verified position papers accompanied by all
supporting documents and the affidavits of their witnesses, if any
which shall take the place of their direct testimony. The parties
shall furnish each other with copies of the position papers
together with the supporting affidavits and documents submitted
by them.
Section 6. Determination of necessity of hearing.Imme-
diately after the submission by the parties of their position papers
and supporting documents, the Hearing Officer shall determine
whether there is a need for a formal hearing. At this stage, he
may, in his discretion, and for the purpose of making such
determination, elicit pertinent facts or information, including
documentary evidence, if any, from any party or witness to
complete, as far as possible, the facts of the case. Facts or
information so elicited may serve as basis for his clarification or
simplifications of the issues in the case. Admissions and
stipulation of facts to abbreviate the proceedings shall be
encouraged.
Section 7. Disposition of Case.If the Hearing Officer finds
no necessity of further hearing after the parties have submitted
their position papers and supporting documents, he shall so
inform the parties stating the reasons therefor and shall ask them
to acknowledge the fact that they were so informed by signing the
minutes of the hearing and the case shall be deemed submitted
for resolution.
As such, the PED Rules provided that the Hearing Officer

may require the parties to submit their respective verified
position papers, together with all supporting documents
and affidavits of witnesses. A formal hearing was not
mandatory; it was within the discretion of the Hearing
Officer to deter-
398

mine whether there was a need for a formal hearing. Since,

according to the foregoing rules, the holding of a hearing
before the PED is discretionary, then the right to cross-
examination could not have been demanded by either
party.
Secondly, it must be pointed out that Chapter 3, Book
VII of the Administrative Code, entitled Adjudication,
does not affect the investigatory functions of the agencies.
The law creating the PED, Section 8 of Presidential Decree
No. 902-A, as amended, defines the authority granted to
the PED, thus:
SEC. 8. The Prosecution and Enforcement Department shall
have, subject to the Commissions control and supervision, the
exclusive authority to investigate, on complaint or motu
proprio, any act or omission of the Board of Directors/Trustees of
corporations, or of partnerships, or of other associations, or of
their stockholders, officers or partners, including any fraudulent
devices, schemes or representations, in violation of any law or
rules and regulations administered and enforced by the
Commission; to file and prosecute in accordance with law and
rules and regulations issued by the Commission and in
appropriate cases, the corresponding criminal or civil case before
the Commission or the proper court or body upon prima facie
finding of violation of any laws or rules and regulations
administered and enforced by the Commission; and to perform
such other powers and functions as may be provided by law or
duly delegated to it by the Commission. (Emphasis provided.)
The law creating PED empowers it to investigate violations

of the rules and regulations promulgated by the SEC and to
file and prosecute such cases. It fails to mention any
adjudicatory functions insofar as the PED is concerned.
Thus, the PED Rules of Practice and Procedure need not
comply with the provisions of the Administrative Code on
adjudication, particularly Section 12(3), Chapter 3, Book
VII.
In Cario v. Commission on Human Rights,57 this Court
sets out the distinction between investigative and
adjudicative functions, thus:
_______________
57G.R. No. 96681, 2 December 1991, 204 SCRA 483, 495-496.
399
VOL. 567, OCTOBER 6, 2008 399

Investigate, commonly understood, means to examine,

explore, inquire or delve or probe into, research on, study. The
dictionary definition of investigate is to observe or study
closely; inquire into systematically: to search or inquire into xx
to subject to an official probe xx: to conduct an official inquiry.
The purpose of an investigation, of course is to discover, to find
out, to learn, obtain information. Nowhere included or intimated
is the notion of settling, deciding or resolving a controversy
involved in the facts inquired into by application of the law to the
facts established by the inquiry.
The legal meaning of investigate is essentially the same: (t)o
follow up step by step by patient inquiry or observation. To trace
or track; to search into; to examine and inquire into with care and
accuracy; to find out by careful inquisition; examination; the
taking of evidence; a legal inquiry; to inquire; to make an
investigation, investigation being in turn described as (a)n
administrative function, the exercise of which ordinarily does not
require a hearing. 2 Am J2d Adm L Sec. 257; xx an inquiry,
judicial or otherwise, for the discovery and collection of facts
concerning a certain matter or matters.
Adjudicate, commonly or popularly understood, means to
adjudge, arbitrate, judge, decide, determine, resolve, rule on,
settle. The dictionary defines the term as to settle finally (the
rights and duties of parties to a court case) on the merits of issues
raised: xx to pass judgment on: settle judicially: xx act as judge.
And adjudge means to decide or rule upon as a judge or with
judicial or quasi-judicial powers: xx to award or grant judicially in
a case of controversy xxx.
In a legal sense, adjudicate means: To settle in the exercise
of judicial authority. To determine finally. Synonymous with
adjudge in its strictest sense; and adjudge means: To pass on
judicially, to decide, settle, or decree, or to sentence or condemn. x
x x Implies a judicial determination of a fact, and the entry of a
judgment.
There is no merit to the respondents averment that the

sections under Chapter 3, Book VII of the Administrative
Code, do not distinguish between investigative and
adjudicatory functions. Chapter 3, Book VII of the
Administrative Code, is unequivocally entitled
Adjudication.
Respondents insist that the PED performs adjudicative
functions, as enumerated under Section 1(h) and (j), Rule
II;
400

and Section 2(4), Rule VII of the PED Rules of Practice and
Procedure:
Section 1. Authority of the Prosecution and Enforcement

Department.Pursuant to Presidential Decree No. 902-A, as
amended by Presidential Decree No. 1758, the Prosecution and
Enforcement Department is primarily charged with the following:
xxxx
(h) Suspends or revokes, after proper notice and hearing in
accordance with these Rules, the franchise or certificate of
registration of corporations, partnerships or associations, upon
any of the following grounds:
1. Fraud in procuring its certificate of registration;
2. Serious misrepresentation as to what the corporation can
do or is doing to the great prejudice of or damage to the general
public;
3. Refusal to comply or defiance of any lawful order of the
Commission restraining commission of acts which would amount
to a grave violation of its franchise;
xxxx
(j) Imposes charges, fines and fees, which by law, it is
authorized to collect;
xxxx
Section 2. Powers of the Hearing Officer.The Hearing
Officer shall have the following powers:
xxxx
4. To cite and/or declare any person in direct or indirect
contempt in accordance with pertinent provisions of the Rules of
Court.
Even assuming that these are adjudicative functions,

the PED, in the instant case, exercised its investigative
powers; thus, respondents do not have the requisite
standing to assail the validity of the rules on adjudication.
A valid source of a statute or a rule can only be contested
by one who will sustain a direct injury as a result of its
enforcement.58 In the instant
_______________
58 Gonzales v. Hon. Narvasa, supra note 48 at p. 528; p. 742, citing

Sanidad v. Commission on Elections, supra note 48 at p. 358;
401
VOL. 567, OCTOBER 6, 2008 401

case, respondents are only being investigated by the PED

for their alleged failure to disclose their negotiations with
GHB and the transactions entered into by its directors
involving IRC shares. The respondents have not shown
themselves to be under any imminent danger of sustaining
any personal injury attributable to the exercise of
adjudicative functions by the SEC. They are not being or
about to be subjected by the PED to charges, fees or fines;
to citations for contempt; or to the cancellation of their
certificate of registration under Section 1(h), Rule II of the
PED Rules of Practice and Procedure.
To repeat, the only powers which the PED was likely to
exercise over the respondents were investigative in nature,
to wit:
Section 1. Authority of the Prosecution and Enforcement
Department.Pursuant to Presidential Decree No. 902-A, as
amended by Presidential Decree No. 1758, the Prosecution and
Enforcement Department is primarily charged with the following:
xxxx
b. Initiates proper investigation of corporations and
partnerships or persons, their books, records and other properties
and assets, involving their business transactions, in coordination
with the operating department involved;
xxxx
e. Files and prosecutes civil or criminal cases before the
Commission and other courts of justice involving violations of
laws and decrees enforced by the Commission and the rules and
regulations promulgated thereunder;
f. Prosecutes erring directors, officers and stockholders of
corporations and partnerships, commercial paper issuers or
persons in accordance with the pertinent rules on procedures;
The authority granted to the PED under Section 1(b),

(e), and (f), Rule II of the PED Rules of Practice and
Procedure, need not comply with Section 12, Chapter 3,
Rule VII of the
_______________
and Valmonte v. Philippine Charity Sweepstakes, G.R. No. 78716, 22

September 1987, Resolution.
402

Administrative Code, which affects only the adjudicatory

functions of administrative bodies. Thus, the PED would
still be able to investigate the respondents under its rules
for their alleged failure to disclose their negotiations with
GHB and the transactions entered into by its directors
involving IRC shares.
This is not to say that administrative bodies performing
adjudicative functions are required to strictly comply with
the requirements of Chapter 3, Rule VII of the
Administrative Code, particularly, the right to cross-
examination. It should be noted that under Section 2.2 of
Executive Order No. 26, issued on 7 October 1992,
abbreviated proceedings are prescribed in the disposition of
administrative cases:
2. Abbreviation of Proceedings. All administrative agencies

are hereby directed to adopt and include in their respective Rules
of Procedure the following provisions:
xxxx
2.2 Rules adopting, unless otherwise provided by special laws
and without prejudice to Section 12, Chapter 3, Book VII of the
Administrative Code of 1987, the mandatory use of affidavits in
lieu of direct testimonies and the preferred use of depositions
whenever practicable and convenient.
As a consequence, in proceedings before administrative

or quasi-judicial bodies, such as the National Labor
Relations Commission and the Philippine Overseas
Employment Agency, created under laws which authorize
summary proceedings, decisions may be reached on the
basis of position papers or other documentary evidence
only. They are not bound by technical rules of procedure
and evidence.59 In fact, the hearings before such agencies
do not connote full adver-
_______________
59Rabago v. National Labor Relations Commission, G.R. No. 82868, 5

August 1991, 200 SCRA 158, 164-165; Rase v. National Labor Relations
Commission, G.R. No. 110637, 7 October 1994, 237 SCRA 523, 532.
403
VOL. 567, OCTOBER 6, 2008 403

sarial proceedings.60 Thus, it is not necessary for the rules

to require affiants to appear and testify and to be cross-
examined by the counsel of the adverse party. To require
otherwise would negate the summary nature of the
administrative or quasi-judicial proceedings.61 In Atlas
Consolidated Mining and Development Corporation v.
Factoran, Jr.,62 this Court stated that:
[I]t is sufficient that administrative findings of fact are supported

by evidence, or negatively stated, it is sufficient that findings of
fact are not shown to be unsupported by evidence. Substantial
evidence is all that is needed to support an administrative finding
of fact, and substantial evidence is such relevant evidence as a
reasonable mind might accept as adequate to support a
conclusion.
In order to comply with the requirements of due process,

what is required, among other things, is that every litigant
be given reasonable opportunity to appear and defend his
right and to introduce relevant evidence in his favor.63
III. The Securities Regulations Code did
not repeal Sections 8, 30 and 36 of the
Revised Securities Act since said provi-
sions were reenacted in the new law.
The Securities Regulations Code absolutely repealed the
Revised Securities Act. While the absolute repeal of a law
generally deprives a court of its authority to penalize the
person charged with the violation of the old law prior to its
appeal, an exception to this rule comes about when the
repealing law punishes the act previously penalized under
the
_______________
60Philippine Airlines, Inc. v. Tongson, 459 Phil. 742, 753; 413 SCRA
344, 352 (2003).
61Rase v. National Labor Relations Commission, supra note 59 at 534.
62G.R. No. L-75501, 15 September 1987, 154 SCRA 49, 54.
63Philippine Airlines, Inc. v. Tongson, supra note 60 at p. 753; p. 352.
404

old law. The Court, in Benedicto v. Court of Appeals, sets

down the rules in such instances:64
As a rule, an absolute repeal of a penal law has the effect of

depriving the court of its authority to punish a person charged
with violation of the old law prior to its repeal. This is because an
unqualified repeal of a penal law constitutes a legislative act of
rendering legal what had been previously declared as illegal, such
that the offense no longer exists and it is as if the person who
committed it never did so. There are, however, exceptions to the
rule. One is the inclusion of a saving clause in the repealing
statute that provides that the repeal shall have no effect on
pending actions. Another exception is where the repealing act
reenacts the former statute and punishes the act previously
penalized under the old law. In such instance, the act committed
before the reenactment continues to be an offense in the statute
books and pending cases are not affected, regardless of whether
the new penalty to be imposed is more favorable to the accused.
In the present case, a criminal case may still be filed

against the respondents despite the repeal, since Sections
8,65 12,66
_______________
64416 Phil. 722, 746-747; 364 SCRA 334, 348 (2001).

65SEC. 8. Requirement of Registration of Securities.
8.1. Securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly filed with
and approved by the Commission. Prior to such sale, information on the
securities, in such form and with such substance as the Commission may
prescribe, shall be made available to each prospective purchaser.
8.2. The Commission may conditionally approve the registration
statement under such terms as it may deem necessary.
8.3. The Commission may specify the terms and conditions under
which any written communication, including any summary prospectus,
shall be deemed not to constitute an offer for sale under this Section.
8.4. A record of the registration of securities shall be kept in a
Register of Securities in which shall be recorded orders entered by the
Commission with respect to such securities. Such register and all
documents or information with respect to the securities registered therein
shall be open to public inspection at reasonable hours on business days.
8.5. The Commission may audit the financial statements, assets and
other information of a firm applying for registration of its securities
whenever it deems the same necessary to insure full disclosure or to
protect the interest of the investors and the public in general.
66SEC. 12. Procedure for Registration of Securities.
12.1. All securities required to be registered under Subsection 8.1
shall be registered through the filing by the issuer in the main office of the
Commission, of a sworn registration statement with respect to such
securities, in such form and containing such information and documents
as the Commission shall prescribe. The registration statement shall
include any prospectus required or permitted to be delivered under
Subsections 8.2, 8.3 and 8.4.
12.2. In promulgating rules governing the content of any registration
statement (including any prospectus made a part thereof or annexed
thereto), the Commission may require the registration statement to
contain such information or documents as it may, by rule, prescribe. It
may dispense with any such requirement, or may require additional
information or documents, including written information from an expert,
depending on the necessity thereof or their applicability to the class of
securities sought to be registered.
12.3. The information required for the registration of any kind, and
all securities, shall include, among others, the effect of the securities issue
on ownership, on the mix of ownership, especially foreign and local
ownership.
12.4. The registration statement shall be signed by the issuers
executive officer, its principal operating officer, its principal financial
officer, its comptroller, principal accounting officer, its corporate secretary
or persons performing similar functions accompanied by a duly verified
resolution of the board of directors of the issuer corporation. The written
consent of the expert named as having certified any part of the
registration statement or any document used in connection therewith
shall also be filed. Where the registration statement
405
VOL. 567, OCTOBER 6, 2008 405

26,67 2768 and 2369 of the Securities Regulations Code

impose
_______________
includes shares to be sold by selling shareholders, a written certification

by such selling shareholders as to the accuracy of any part of the
registration statement contributed to by such selling shareholders shall
also be filed.
12.5. a) Upon filing of the registration statement, the issuer shall pay
to the Commission a fee of not more than one-tenth (1/10) of one per
centum (1%) of the maximum aggregate price at which such securities are
proposed to be offered. The Commission shall prescribe by rule
diminishing fees in inverse proportion to the value of the aggregate price
of the offering.
b) Notice of the filing of the registration statement shall be
immediately published by the issuer, at its own expense, in two (2)
newspapers of general circulation in the Philippines, once a week for two
(2) consecutive weeks, or in such other manner as the Commission by rule
shall prescribe, reciting that a registration statement for the sale of such
security has been filed, and that the aforesaid registration statement, as
well as the papers attached thereto are open to inspection at the
Commission during business hours, and copies thereof, photostatic or
otherwise, shall be furnished to interested parties at such reasonable
charge as the Commission may prescribe.
12.6. Within forty-five (45) days after the date of filing of the
registration statement, or by such later date to which the issuer has
consented, the Commission shall declare the registration statement
effective or rejected, unless the applicant is allowed to amend the
registration statement as provided in Section 14 hereof. The Commission
shall enter an order declaring the registration statement to be effective if
it finds that the registration statement together with all the other papers
and documents attached thereto, is on its face complete and that the
requirements have been complied with. The Commission may impose such
terms and conditions as may be necessary or appropriate for the
protection of the investors.
12.7. Upon effectivity of the registration statement, the issuer shall
state under oath in every prospectus that all registration requirements
have been met and that all information are true and correct as
represented by the issuer or the one making the statement. Any untrue
statement of fact or omission to state a material fact required to be stated
therein or necessary to make the statement therein not misleading shall
constitute fraud.
67SEC. 26. Fraudulent Transactions.It shall be unlawful for any
person, directly or indirectly, in connection with the purchase or sale of
any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue statement of
a material fact of any omission to state a material fact necessary in order
to make the statements made, in the light of the circumstances under
which they were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of business
which operates or would operate as a fraud or deceit upon any person.
68SEC. 27. Insiders Duty to Disclose When Trading.
27.1. It shall be unlawful for an insider to sell or buy a security of the
issuer, while in possession of material information with respect to the
issuer or the security that is not generally available to the public, unless:
(a) The insider proves that the information was not gained from such
relationship; or (b) If the other party selling to or buying from the insider
(or his agent) is identified, the insider proves: (i) that he disclosed the
information to the other party, or (ii) that he had reason to believe that
the other party otherwise is also in possession of the information. A
purchase or sale of a security of the issuer made by an insider defined in
Subsection 3.8, or such insiders spouse or relatives by affinity or
consanguinity within the second degree, legitimate or common-law, shall
be presumed to have been effected while in possession of material non-
public information if transacted after such information came into
existence but prior to dissemination of such information to the public and
the lapse of a reasonable time for the market to absorb such information:
Provided, however, That this presumption shall be rebutted upon a
showing by the purchaser or seller that he was not aware of the material
non-public information at the time of the purchase or sale.
27.2. For purposes of this Section, information is material non-
public if: (a) It has not been generally disclosed to the public and would
likely affect the market price of the security after being disseminated to
the public and the lapse of a reasonable time for the market to absorb the
information; or (b) would be considered by a reasonable person important
under the circumstances in determining his course of action whether to
buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate material
non-public information about the issuer or the security to any person who,
by virtue of the communication, becomes an insider as defined in
Subsection 3.8, where the insider communicating the information knows
or has reason to believe that such person will likely buy or sell a security
of the issuer while in possession of such information.
27.4. a) It shall be unlawful where a tender offer has commenced or is
about to commence for:
(i) Any person (other than the tender offeror) who is in
possession of material non-public information relating to such
tender offer, to buy or sell the securities of the issuer that are
sought or to be sought by such tender offer if such person knows or
has reason to believe that the information is non-public and has
been acquired directly or indirectly from the tender offeror, those
acting on its behalf, the issuer of the securities sought or to be
sought by such tender offer, or any insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer of
the securities sought or to be sought by such tender offer, and any
insider of such issuer to communicate material non-public
information relating to the tender offer to any other person where
such communication is likely to result in a violation of Subsection
27.4 (a)(i).
(b) For purposes of this subsection the term securities of the issuer
sought or to be sought by such tender offer shall include any securities
convertible or exchangeable into such securities or any options or rights in
any of the foregoing securities.
69 SEC. 23. Transactions of Directors, Officers and Principal
Stockholders.
23.1. Every person who is directly or indirectly the beneficial owner of
more than ten per centum (10%) of any class of any equity security which
satisfies the requirements of Subsection 17.2, or who is a director or an
officer of the issuer of such security, shall file, at the time either such
requirement is first satisfied or within ten days after he becomes such a
beneficial owner, director, or officer, a statement with the Commission
and, if such security is listed for trading on an Exchange, also with the
Exchange, of the amount of all equity securities of such issuer of which he
is the beneficial owner, and within ten (10) days after the close of each
calendar month thereafter, if there has been a change in such ownership
during such month, shall file with the Commission, and if such security is
listed for trading on an Exchange, shall also file
406

duties that are substantially similar to Sections 8, 30 and

36 of the repealed Revised Securities Act.
Section 8 of the Revised Securities Act, which previously
provided for the registration of securities and the
information that needs to be included in the registration
statements, was expanded under Section 12, in connection
with Section 8 of the Securities Regulations Code. Further
details of the information required to be disclosed by the
registrant are explained in the Amended Implementing
Rules and Regulations of the Securities Regulations Code,
issued on 30 December 2003, particularly Sections 8 and 12
thereof.
Section 30 of the Revised Securities Act has been
reenacted as Section 27 of the Securities Regulations Code,
still penalizing an insiders misuse of material and non-
public information about the issuer, for the purpose of
protecting public investors. Section 26 of the Securities
Regulations Code even widens the coverage of punishable
acts, which intend to defraud public investors through
various devices, misinformation and omissions.
Section 23 of the Securities Regulations Code was
practically lifted from Section 36(a) of the Revised
Securities Act. Both provisions impose upon (1) a beneficial
owner of more than ten percent of any class of any equity
security or (2) a director or any officer of the issuer of such
security, the obligation to submit a statement indicating
his or her ownership of the issuers securities and such
changes in his or her ownership thereof.
Clearly, the legislature had not intended to deprive the
courts of their authority to punish a person charged with
violation of the old law that was repealed; in this case, the
Revised Securities Act.
_______________
with the Exchange, a statement indicating his ownership at the close of

the calendar month and such changes in his ownership as have occurred
during such calendar month.
407
VOL. 567, OCTOBER 6, 2008 407

IV. The SEC retained the jurisdiction to investigate

violations of the Revised
Securities Act, reenacted in the Se-
curities Regulations Code, despite
the abolition of the PED.
Section 53 of the Securities Regulations Code clearly
provides that criminal complaints for violations of rules
and regulations enforced or administered by the SEC shall
be referred to the Department of Justice (DOJ) for
preliminary investigation, while the SEC nevertheless
retains limited investigatory powers.70 Additionally, the
SEC may still impose
_______________
70SEC. 53. Investigations, Injunctions and Prosecution of Offenses.

53.1 The Commission may, in its discretion, make such investigations as it
deems necessary to determine whether any person has violated or is about
to violate any provision of this Code, any rule, regulation or order
thereunder, or any rule of an Exchange, registered securities association,
clearing agency, other self-regulatory organization, and may require or
permit any person to file with it a statement in writing, under oath or
otherwise, as the Commission shall determine, as to all facts and
circumstances concerning the matter to be investigated. The Commission
may publish information concerning any such violations, and to
investigate any fact, condition, practice or matter which it may deem
necessary or proper to aid in the enforcement of the provisions of this
Code, in prescribing of rules and regulations thereunder, or in securing
information to serve as a basis for recommending further legislation
concerning the matters to which this Code relates: Provided, however,
That any person requested or subpoenaed to produce documents or testify
in any investigation shall simultaneously be notified in writing of the
purpose of such investigation: Provided, further, That all criminal
complaints for violations of this Code, and the implementing rules and
regulations enforced or administered by the Commission shall be referred
to the Department of Justice for preliminary investigation and
prosecution before the proper court: Provided, furthermore, That in
instances where the law allows independent civil or criminal proceedings
of violations arising from the same act, the Commission shall take
appropriate action to imple-
408

the appropriate administrative sanctions under Section 54

of the aforementioned law.71
In Morato v. Court of Appeals,72 the cases therein were
still pending before the PED for investigation and the SEC
for resolution when the Securities Regulations Code was
enacted. The case before the SEC involved an intra-
corporate dispute, while the subject matter of the other
case investigated by the PED involved the schemes,
devices, and violations of pertinent rules and laws of the
companys board of directors. The enactment of the
Securities Regulations Code did not result in the dismissal
of the cases; rather, this Court ordered the transfer of one
case to the proper regional trial court and the SEC to
continue with the investigation of the other case.
The case at bar is comparable to the aforecited case. In
this case, the SEC already commenced the investigative
proceedings against respondents as early as 1994.
Respondents were
_______________
ment the same: Provided, finally,That the investigation, prosecution, and

trial of such cases shall be given priority.
71SEC. 54. Administrative Sanctions.54.1 If after due notice and

hearing, the Commission finds that: (a) There is a violation of this Code,
its rules, or its orders; (b) Any registered broker or dealer, associated
person thereof has failed reasonably to supervise, with a view to
preventing violations, another person subject to supervision who commits
any such violation; (c) Any registrant or other person has, in a registration
statement or in other reports, applications, accounts, records or
documents required by law or rules to be filed with the Commission, made
any untrue statement of a material fact, or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading; or, in the case of an underwriter, has failed to
conduct an inquiry with reasonable diligence to insure that a registration
statement is accurate and complete in all material respects; or (d) Any
person has refused to permit any lawful examinations into its affairs, it
shall in its discretion, and subject only to the limitations hereinafter
prescribed, impose any or all of the following sanctions as may be
appropriate in light of the facts and circumstances.
72G.R. No. 141510, 13 August 2004, 436 SCRA 438, 458.
409
VOL. 567, OCTOBER 6, 2008 409

called to appear before the SEC and explain their failure to

disclose pertinent information on 14 August 1994.
Thereafter, the SEC Chairman, having already made
initial findings that respondents failed to make timely
disclosures of their negotiations with GHB, ordered a
special investigating panel to hear the case. The
investigative proceedings were interrupted only by the writ
of preliminary injunction issued by the Court of Appeals,
which became permanent by virtue of the Decision, dated
20 August 1998, in C.A.-G.R. SP No. 37036. During the
pendency of this case, the Securities Regulations Code
repealed the Revised Securities Act. As in Morato v. Court
of Appeals, the repeal cannot deprive SEC of its jurisdiction
to continue investigating the case; or the regional trial
court, to hear any case which may later be filed against the
respondents.
V. The instant case has not yet prescribed.
Respondents have taken the position that this case is
moot and academic, since any criminal complaint that may
be filed against them resulting from the SECs
investigation of this case has already prescribed.73 They
point out that the prescription period applicable to offenses
punished under special laws, such as violations of the
Revised Securities Act, is twelve years under Section 1 of
Act No. 3326, as amended by Act No. 3585 and Act No.
3763, entitled An Act to Establish Periods of Prescription
for Violations Penalized by Special Acts and Municipal
Ordinances and to Provide When Prescription Shall Begin
to Act.74 Since the offense was commit-
_______________
73Rollo, pp. 649-652.

74 Section 1. Violation penalized by special acts shall, unless
otherwise provided in such acts, prescribe in accordance with the following
rules: (a) imprisonment for not more than one month, or both; (b) after
four years for those punished by imprisonment for more than one month,
but less than two years; (c) after eight years for those punished by
imprisonment for two years or more, but less than six years; and (d) after
twelve years for any other offense
410

ted in 1994, they reasoned that prescription set in as early

as 2006 and rendered this case moot. Such position,
however, is incongruent with the factual circumstances of
this case, as well as the applicable laws and jurisprudence.
It is an established doctrine that a preliminary
investigation interrupts the prescription period.75 A
preliminary investigation is essentially a determination
whether an offense has been committed, and whether there
is probable cause for the accused to have committed an
offense:
A preliminary investigation is merely inquisitorial, and it is

often the only means of discovering the persons who may be
reasonably charged with a crime, to enable the fiscal to prepare
the complaint or information. It is not a trial of the case on the
merits and has no purpose except that of determining whether a
crime has been committed or whether there is probable cause to
believe that the accused is guilty thereof.76
Under Section 45 of the Revised Securities Act, which is

entitled Investigations, Injunctions and Prosecution of
Offenses, the Securities Exchange Commission (SEC) has
the authority to make such investigations as it deems
necessary to determine whether any person has violated or
is about to violate any provision of this Act XXX. After a
finding that a person has violated the Revised Securities
Act, the SEC may
_______________
punished by imprisonment for six years or more, except the crime of

treason, which shall prescribe after twenty years: Provided, however,
That all offenses against any law or par of law administered by the
Bureau of Internal Revenue shall prescribe after five years. Violations
penalized by municipal ordinances shall prescribe after two months.
75Llenes v. Dicdican, G.R. No. 122274, 31 July 1986, 260 SCRA 207,
217-220; and Baytan v. Commission on Elections, G.R. No. 153945, 4
February 2003, 396 SCRA 703, 713.
76 Bautista v. Court of Appeals, G.R. No. 143375, 6 July 2001, 360
SCRA 618, 623.
411
VOL. 567, OCTOBER 6, 2008 411

refer the case to the DOJ for preliminary investigation and

prosecution.
While the SEC investigation serves the same purpose
and entails substantially similar duties as the preliminary
investigation conducted by the DOJ, this process cannot
simply be disregarded. In Baviera v. Paglinawan,77 this
Court enunciated that a criminal complaint is first filed
with the SEC, which determines the existence of probable
cause, before a preliminary investigation can be
commenced by the DOJ. In the aforecited case, the
complaint filed directly with the DOJ was dismissed on the
ground that it should have been filed first with the SEC.
Similarly, the offense was a violation of the Securities
Regulations Code, wherein the procedure for criminal
prosecution was reproduced from Section 45 of the Revised
Securities Act.78 This Court affirmed the dismissal, which
it explained thus:
_______________
77G.R. No. 168380, 8 February 2007, 515 SCRA 170.

78The Revised Securities Act provides that:
Sec. 45. Investigations, injunctions and prosecution of offenses.
(a) The Commission may, in its discretion, make such
investigations as it deems necessary to determine whether
any person has violated or is about to violate any provision
of this Act or any rule or regulation thereunder, and may
require or permit any person to file with it a statement in writing,
under oath or otherwise, as the Commission shall determine, as to
all facts and circumstances concerning the matter to be
investigated. The Commission is authorized, in its discretion, to
publish information concerning any such violations, and to
investigate any fact, condition, practice or matter which it may
deem necessary or proper to aid in the enforcement of the
provisions of this Act, in the prescribing of rules and regulations
thereunder, or in securing information to serve as a basis for
recommending further legislation concerning the matters to which
this Act relates: Provided, however, That no such investigation
shall be conducted unless the person investigated is furnished with
a copy of any complaint which may have been the cause of the
initiation of the investigation or is notified in writing of the purpose
of such investigation: Provided, further, That all criminal
complaints for violations of this Act, and the implementing rules
and regulations en-
412

The Court of Appeals held that under the above provision, a

criminal complaint for violation of any law or rule administered
by the SEC must first be filed with the latter. If the Commission
finds that there is probable cause, then it should refer the case to
the DOJ. Since petitioner failed to comply with the foregoing
procedural re-
_______________
forced or administered by the Commission shall be referred to the National

Prosecution Service of the Ministry of Justice for preliminary investigation
and prosecution before the proper court: and, Provided, finally, That the
investigation, prosecution, and trial of such cases shall be given priority.
The Securities Regulations Code provides that:

SEC. 53. Investigations, Injunctions and Prosecution of Offenses.
53.1. The Commission may, in its discretion, make such investigations as it
deems necessary to determine whether any person has violated or is about
to violate any provision of this Code, any rule, regulation or order
thereunder, or any rule of an Exchange, registered securities association,
clearing agency, other self-regulatory organization, and may require or
permit any person to file with it a statement in writing, under oath or
otherwise, as the Commission shall determine, as to all facts and
circumstances concerning the matter to be investigated. The Commission
may publish information concerning any such violations, and to investigate
any fact, condition, practice or matter which it may deem necessary or
proper to aid in the enforcement of the provisions of this Code, in the
prescribing of rules and regulations thereunder, or in securing information
to serve as a basis for recommending further legislation concerning the
matters to which this Code relates: Provided, however, That any person
requested or subpoenaed to produce documents or testify in any
investigation shall simultaneously be notified in writing of the purpose of
such investigation: Provided, further, That all criminal complaints for
violations of this Code, and the implementing rules and regulations
enforced or administered by the Commission shall be referred to the
Department of Justice for preliminary investigation and prosecution before
the proper court: Provided, furthermore, That in instances where the law
allows independent civil or criminal proceedings of violations arising from
the same act, the Commission shall take appropriate action to implement
the same: Provided, finally, That the investigation, prosecution, and trial
of such cases shall be given priority.
413
VOL. 567, OCTOBER 6, 2008 413

Corporation
quirement, the DOJ did not gravely abuse its discretion in

dismissing his complaint in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation
Code is a specialized dispute. Hence, it must first be referred to
an administrative agency of special competence, i.e., the SEC.
Under the doctrine of primary jurisdiction, courts will not
tribunal to determine technical and intricate matters of fact. The
Securities Regulation Code is a special law. Its enforcement is
particularly vested in the SEC. Hence, all complaints for any
violation of the Code and its implementing rules and regulations
should be filed with the SEC. Where the complaint is criminal in
nature, the SEC shall indorse the complaint to the DOJ for
preliminary investigation and prosecution as provided in Section
53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner
committed a fatal procedural lapse when he filed his criminal
complaint directly with the DOJ. Verily, no grave abuse of
discretion can be ascribed to the DOJ in dismissing petitioners
complaint.
The said case puts in perspective the nature of the

investigation undertaken by the SEC, which is a requisite
before a criminal case may be referred to the DOJ. The
Court declared that it is imperative that the criminal
prosecution be initiated before the SEC, the administrative
agency with the special competence.
It should be noted that the SEC started investigative
proceedings against the respondents as early as 1994. This
investigation effectively interrupted the prescription
period. However, said proceedings were disrupted by a
preliminary injunction issued by the Court of Appeals on 5
May 1995, which effectively enjoined the SEC from filing
any criminal, civil, or administrative case against the
respondents herein.79 Thereafter, on 20 August 1998, the
appellate court issued the as-
_______________
79Rollo, p. 32.
414
sailed Decision in C.A. G.R. SP. No. 37036 ordering that

the writ of injunction be made permanent and prohibiting
the SEC from taking cognizance of and initiating any
action against herein respondents. The SEC was bound to
comply with the aforementioned writ of preliminary
injunction and writ of injunction issued by the Court of
Appeals enjoining it from continuing with the investigation
of respondents for 12 years. Any deviation by the SEC from
the injunctive writs would be sufficient ground for
contempt. Moreover, any step the SEC takes in defiance of
such orders will be considered void for having been taken
against an order issued by a court of competent
jurisdiction.
An investigation of the case by any other administrative
or judicial body would likewise be impossible pending the
injunctive writs issued by the Court of Appeals. Given the
ruling of this Court in Baviera v. Paglinawan,80 the DOJ
itself could not have taken cognizance of the case and
conducted its preliminary investigation without a prior
determination of probable cause by the SEC. Thus, even
presuming that the DOJ was not enjoined by the Court of
Appeals from conducting a preliminary investigation, any
preliminary investigation conducted by the DOJ would
have been a futile effort since the SEC had only started
with its investigation when respondents themselves
applied for and were granted an injunction by the Court of
Appeals.
Moreover, the DOJ could not have conducted a
preliminary investigation or filed a criminal case against
the respondents during the time that issues on the
effectivity of Sections 8, 30 and 36 of the Revised Securities
Act and the PED Rules of Practice and Procedure were still
pending before the Court of Appeals. After the Court of
Appeals declared the aforementioned statutory and
regulatory provisions invalid and, thus, no civil, criminal or
administrative case may be filed against the respondents
for violations thereof, the DOJ would have
_______________
80G.R. No. 168380, 8 February 2007, 515 SCRA 170.
415
VOL. 567, OCTOBER 6, 2008 415

been at a loss, as there was no statutory provision which
respondents could be accused of violating.
Accordingly, it is only after this Court corrects the
erroneous ruling of the Court of Appeals in its Decision
dated 20 August 1998 that either the SEC or DOJ may
properly conduct any kind of investigation against the
respondents for violations of Sections 8, 30 and 36 of the
Revised Securities Act. Until then, the prescription period
is deemed interrupted.
To reiterate, the SEC must first conduct its
investigations and make a finding of probable cause in
accordance with the doctrine pronounced in Baviera v.
Paglinawan.81 In this case, the DOJ was precluded from
initiating a preliminary investigation since the SEC was
halted by the Court of Appeals from continuing with its
investigation. Such a situation leaves the prosecution of the
case at a standstill, and neither the SEC nor the DOJ can
conduct any investigation against the respondents, who, in
the first place, sought the injunction to prevent their
prosecution. All that the SEC could do in order to break the
impasse was to have the Decision of the Court of Appeals
overturned, as it had done at the earliest opportunity in
this case. Therefore, the period during which the SEC was
prevented from continuing with its investigation should not
be counted against it. The law on the prescription period
was never intended to put the prosecuting bodies in an
impossible bind in which the prosecution of a case would be
placed way beyond their control; for even if they avail
themselves of the proper remedy, they would still be barred
from investigating and prosecuting the case.
Indubitably, the prescription period is interrupted by
commencing the proceedings for the prosecution of the
accused. In criminal cases, this is accomplished by
initiating the preliminary investigation. The prosecution of
offenses punishable under the Revised Securities Act and
the Securities Regula-
_______________
81Id.
416

tions Code is initiated by the filing of a complaint with the

SEC or by an investigation conducted by the SEC motu
proprio. Only after a finding of probable cause is made by
the SEC can the DOJ instigate a preliminary investigation.
Thus, the investigation that was commenced by the SEC in
1995, soon after it discovered the questionable acts of the
respondents, effectively interrupted the prescription period.
Given the nature and purpose of the investigation
conducted by the SEC, which is equivalent to the
preliminary investigation conducted by the DOJ in
criminal cases, such investigation would surely interrupt
the prescription period.
VI. The Court of Appeals was justi-
fied in denying SECs Motion for
Leave to Quash SEC Omnibus
Orders dated 23 October 1995.
The SEC avers that the Court of Appeals erred when it
denied its Motion for Leave to Quash SEC Omnibus
Orders, dated 23 October 1995, in the light of its admission
that the PED had the sole authority to investigate the
present case. On this matter, this Court cannot agree with
the SEC.
In the assailed decision, the Court of Appeals denied the
SECs Motion for Leave to Quash SEC Omnibus Orders,
since it found other issues that were more important than
whether or not the PED was the proper body to investigate
the matter. Its refusal was premised on its earlier finding
that no criminal, civil, or administrative case may be filed
against the respondents under Sections 8, 30 and 36 of the
Revised Securities Act, due to the absence of any
implementing rules and regulations. Moreover, the validity
of the PED Rules on Practice and Procedure was also
raised as an issue. The Court of Appeals, thus, reasoned
that if the quashal of the orders was granted, then it would
be deprived of the opportunity to determine the validity of
the aforementioned rules and statutory provisions. In
addition, the SEC would merely pursue the same case
without the Court of Appeals having determined
417
VOL. 567, OCTOBER 6, 2008 417

whether or not it may do so in accordance with due process

requirements. Absent a determination of whether the SEC
may file a case against the respondents based on the
assailed provisions of the Revised Securities Act, it would
have been improper for the Court of Appeals to grant the
SECs Motion for Leave to Quash SEC Omnibus Orders.
In all, this Court rules that no implementing rules were
needed to render effective Sections 8, 30 and 36 of the
Revised Securities Act; nor was the PED Rules of Practice
and Procedure invalid, prior to the enactment of the
Securities Regulations Code, for failure to provide parties
with the right to cross-examine the witnesses presented
against them. Thus, the respondents may be investigated
by the appropriate authority under the proper rules of
procedure of the Securities Regulations Code for violations
of Sections 8, 30, and 36 of the Revised Securities Act.82
IN VIEW OF THE FOREGOING, the instant Petition is
GRANTED. This Court hereby REVERSES the assailed
Decision of the Court of Appeals promulgated on 20 August
1998 in CA-G.R. SP No. 37036 and LIFTS the permanent
injunction issued pursuant thereto. This Court further
DECLARES that the investigation of the respondents for
violations of
_______________
82 Section 5.2 of Republic Act No. 8799, known as the Securities

Regulations Code, enacted on 19 July 2000, reads:
5.2 The Commissions jurisdiction over all cases enumerated
under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, That the Supreme Court in the
exercise of its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving
intra-corporate disputes submitted for final resolution which should
be resolved within one (1) year from the enactment of this Code.
The Commission shall retain jurisdiction over pending suspension
of payments/rehabilitation cases filed as of 30 June 2000 until
finally disposed.
418

Sections 8, 30 and 36 of the Revised Securities Act may be

undertaken by the proper authorities in accordance with
the Securities Regulations Code. No costs.
SO ORDERED.
Quisumbing, Ynares-Santiago, Velasco, Jr., Reyes and

Leonardo-De Castro, JJ., concur.
Puno (C.J.), I also join J. Tinga.
Carpio, J., See Dissenting Opinion.
Austria-Martinez, J., I also concur with Justice Tinga.
Corona, J., On Official Leave.
Carpio-Morales, J., Also concurring with J. Tingas
opinion.
Azcuna, J., I also concur with the separate opinion of
Justice Dante O. Tinga.
Tinga, J., Please see concurring opinion.
Nachura and Brion, JJ., No Part.
CONCURRING OPINION
TINGA, J.:
While I fully concur with the ponencia ably penned by

Justice Chico-Nazario, I write separately to highlight the
factual and legal background behind the legal proscription
against the blight that is insider trading. This case is the
farthest yet this Court has explored the matter, and it is
heartening that our decision today affirms the viability for
prosecutions against insider trading, an offense that
assaults the integrity of our vital securities market. This
case bears special significance, even if it does not dwell on
the guilt or innocence of petitioners who are charged with
insider trading, simply because the arguments raised by
them essentially assail the validity of our laws against
insider trading. Since we deny
419
VOL. 567, OCTOBER 6, 2008 419

certiorari and debunk the challenge, our ruling will

embolden our securities regulators to investigate and
prosecute insider trading cases, thereby ensuring a more
stable, mature and investor-friendly stock market.
The securities market, when active and vibrant, is an
effective engine of economic growth. It is more able to
channel capital as it tends to favor start-up and venture
capital companies. To remain attractive to investors,
however, the stock market should be fair and orderly. All
the regulations, all the requirements, all the procedures
and all the people in the industry should strive to achieve
this avowed objective. Manipulative devices and deceptive
practices, including insider trading, throw a monkey
wrench right into the heart of the securities industry.
When someone trades in the market with unfair advantage
in the form of highly valuable secret inside information, all
other participants are defrauded. All of the mechanisms
become worthless. Given enough of stock market scandals
coupled with the related loss of faith in the market, such
abuses could presage a severe drain of capital. And
investors would eventually feel more secure with their
money invested elsewhere.1
The securities market is imbued with public interest and
as such it is regulated. Specifically, the reasons given for
securities regulation are (1) to protect investors, (2) to
supply the informational needs of investors, (3) to ensure
that stock prices conform to the fundamental value of the
companies traded, (4) to allow shareholders to gain greater
control over their corporate managers, and (5) to foster
economic growth, innovation and access to capital.2
_______________
1 See Colin Chapman, How the Stock Market Works (1988 ed.), pp. 151-
152.
2 See R. Jennings, H. Marsh, Jr., J. Coffee, Jr. and J. Salgiman,
Securities Regulation: Cases and Materials (8th ed., 1998), pp. 1-6.
420

In checking securities fraud, regulation of the stock

market assumes quite a few forms, the most common being
disclosure regulation and financial activity regulation.
Disclosure regulation requires issuers of securities to
make public a large amount of financial information to
actual and potential investors. The standard justification
for disclosure rules is that the managers of the issuing firm
have more information about the financial health and
future of the firm than investors who own or are
considering the purchase of the firms securities. Financial
activity regulation consists of rules about traders of
securities and trading on or off the stock exchange. A prime
example of this form of regulation is the set of rules against
trading by insiders.3
I.
In its barest essence, insider trading involves the

trading of securities based on knowledge of material
information not disclosed to the public at the time.4 Such
activity is generally prohibited in many jurisdictions,
including our own, though the particular scope and
definition of insider trading depends on the legislation or
case law of each jurisdiction. In the United States, the rule
has been stated as that anyone who, for trading for his
own account in the securities of a corporation has access,
directly or indirectly, to information intended to be
available only for a corporate purpose and not for the
personal benefit of anyone may not take advantage of such
information knowing it is unavailable to those with whom
he is dealing, i.e., the investing public.5
_______________
3 F. Babozzi and F. Modigliani, Capital Markets (3rd ed., 2006).

4 Generally speaking, insider trading is trading in securities while in
possession of material nonpublic information. S. Bainbridge, Corporation
Law and Economics (2002 ed.), p. 519.
5 Matter of Cady, Roberts & Co., 40 SEC 907, 912 (1961); cited in Texas
Gulf Sulpher Co., 401 F.2d 833 (2d Cir. 1968).
421
VOL. 567, OCTOBER 6, 2008 421

It would be useful to examine the historical evolution of

the rule.
In the United States, legal abhorrence of insider trading
preceded the modern securities market. Prior to 1900, it
was treatise law that the doctrine that officers and
directors of corporations are trustees of the stockholders
does not extend to their private dealings with stockholders
or others, though in such dealings they take advantage of
knowledge gained through their official position.6 Under
that doctrine, the misrepresentation or fraudulent
concealment of a material fact by such corporate officers or
directors gave rise to liability based on general fraud as
understood in common law, yet such liability would arise
only if the defendant actively prevented the plaintiff from
looking into or inquiring upon the affairs or condition of the
corporation and its prospects for dividends.7 The rule, as
understood then, did not encompass a positive duty for
public disclosure of any material information pertinent to a
corporation and/or its securities.
The first paradigm shift came with a decision in 1903 of
the Georgia Supreme Court in Oliver v. Oliver,8 which
pronounced that the shareholder had a right to disclosure,
and the corporation a corresponding duty to disclose such
material information, based on the principle that [w]here
the director obtains the information giving added value to
the stock by virtue of his official position, he holds the
information in trust for the benefit of [the shareholders].9
Subsequent state jurisprudence affirmed this fiduciary
obligation to disclose material nonpublic information to
shareholders before trading with them, otherwise known as
the minority or the duty to dis-
_______________
6 Bainbridge, supra note 4 at p. 520 citing H.L. Wilgus, Purchase of
Shares of a Corporation by a Director from a Shareholder, 8 Mich. L. Rev.
267, 267 (1910).
7 Id., citing Carpenter v. Danforth, 52 Barb. 581 589 (N.Y.Sup.
Ct.1868).
8 45 S.E. 232 (Ga.1903).
9 Id.
422

close rule. However, the U.S. Supreme Court in 1909

expressed preference for a different rule in Strong v.
Repide,10 acknowledging that the corporate directors
generally owed no duty to disclose material facts when
trading with shareholders, unless there were special
circumstances that gave rise to such duty. The special
circumstances, as identified in Strong, were the
concealment of identity by the defendant, and the failure to
disclose significant facts having a dramatic impact on the
stock price.
Both the special circumstances and duty to disclose
rules gained adherents in the next several years. In the
meantime, the 1920s saw the unprecedented popularity of
the stock market with the general public, which was widely
taken advantage of by corporations and brokers through
unscrupulous practices. The American stock market
collapse of October 1929, which helped trigger the
worldwide Great Depression, left fully half of the $25
million worth of securities floated during the post-First
World War period as worthless, to the injury of thousands
of individuals who had invested their life savings in those
securities.11 The consequent wellspring of concern over the
welfare of the investors animated the passage of the first
U.S. federal securities laws, such as the Securities
Exchange Act of 1934 which declared that transactions in
securities as commonly conducted upon securities
exchanges and over-the-counter markets are affected with
a national public interest which makes it necessary to
provide for regulation and control of such transactions.12
Section 10(b) of the Securities Exchange Act of 1934
provided that:
_______________
10 213 U.S. 419 (1909).

11 See R. Jennings, H. Marsh Jr., J. Coffee Jr. and J. Seligman, supra
note 2 at p. 2; citing H.R.Rep. No. 85, 73d Cong., 1st Sess. 2 (1933).
12 Id.
423
VOL. 567, OCTOBER 6, 2008 423

It shall be unlawful for any person, directly or indirectly, by

the use of any means or instrumentality of interstate commerce or
of the mails, or of any facility of the national securities exchange
xxx
(b) To use or employ, in connection with the purchase or sale
of any security registered on a national securities exchange or any
security not so registered, any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the
public interest or for the protection of investors.13
It is this provision which stands as the core statutory

authority prohibiting insider trading under U.S. federal
law.14 Yet the provision itself does not utilize the term
insider trading, and indeed doubts have been expressed
whether it was intended at all by the U.S. Congress to
impose a ban on insider trading through the 1934
Securities Exchange Act.15 At the same time, the provision
did grant to the U.S. Securities and Exchange Commission
(U.S. SEC) the authority to promulgate rules and
regulations as necessary or appropriate in the public
interest or for the protection of investors. This power was
exercised by the U.S. SEC in 1942, when it enacted Rule
10b-5, which has been described as the foundation on
which the modern insider trading prohibition rests.16 The
Rule reads:
It shall be unlawful for any person, directly or indirectly, by

the use of any means or instrumentality of interstate commerce,
or of the mails or of any facility of any national securities
exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make the
_______________
13 15 U.S.C. 78j(b).
14 Bainbridge, supra note 4 at p. 525.
15 Id., at p. 526.
16 Id., at p. 527.
424
Corporation
statements made, in the light of the circumstances under which

they were made, not misleading, or
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceipt upon any person,
in connection with the purchase or sale of any security.17
Again, the rule by itself did not provide for an explicit

prohibition on insider trading practices, and commentators
have expressed doubts whether the U.S. SEC in 1942 had
indeed contemplated that the rule work to such effect.18 Yet
undoubtedly the Rule created a powerful antifraud
weapon,19 and it would finally be applied by the U.S. SEC
as a prohibition against insider trading in the 1961 case of
In re Cady, Roberts & Co.20
The facts of that case hew closely to our traditional
understanding of insider trading. A corporate director of
Curtiss-Wright Corporation had told one of his business
partners, Gimpel, that the board of directors had decided to
reduce the companys quarterly dividend. Armed with such
information even before the news was announced, Gimpel
sold several thousand shares in the corporations stock held
in customer accounts over which he had discretionary
trading authority. When the news of the reduced dividend
was publicly disclosed, the corporations share prices
predictably dropped, and the owners of the sold shares
were able to avoid injury. The
_______________
17 17 CFR 240.10b-5.
18 According to one account, the decision to adopt the rule and model
it on section 17(a) [of the 1933 Securities Exchange Act] was arrived at
without any deliberation, with the only official discussion consisting of one
SEC Commissioner reportedly observing, we are against fraud, arent
we? T.L. Hazen, The Law of Securities Regulation (4th ed., 2002), at p.
571; citing J. Blackmun, dissenting, Blue Chips Stamps v. Manor Drug
Stores, 421 U.S. 723, 767 (1975).
19 Id., at pp. 570-571.
20 Supra note 5.
425
VOL. 567, OCTOBER 6, 2008 425

U.S. SEC ruled that Gimpel had violated Rule 10b-5, even
though he was not an insider privy to the confidential
material information, but merely a tippee of that insider.
In doing so, the U.S. SEC formulated the disclose or
abstain rule, requiring that an insider in possession of
material nonpublic information must disclose such
information before trading or, if disclosure is impossible or
improper, abstain from trading.21
Not long after, the American federal courts adopted the
principles pronounced by the U.S. SEC in Cady, Roberts,
and the rule evolved that insider trading was deemed a
form of securities fraud within the U.S. SECs regulatory
jurisdiction.22 Subsequently, jurisprudential limitations
were imposed by the U.S. Supreme Court, ruling for
example that an insider bears a duty to disclose on the
basis of a fiduciary relationship of trust and confidence as
between him and the shareholders;23 or that a tippee is
liable for insider trading only if the tipper breached a
fiduciary relationship by disclosing information to the
tippee, who knew or had reason to know of the breach of
duty.24 In response to these decisions, the U.S. SEC
promulgated Rule 14e-3, which specifically prohibited
insiders of the bidder and the target company from
divulging confidential information about a tender offer to
persons that are likely to violate the rule by trading on the
basis of that information.25
In the United Kingdom, insider trading is considered as
a type of market abuse assuming the form of behavior
based on information which is not generally available to
those using
_______________
21 Bainbridge, supra note 4 at p. 528.

22 Particularly, through the case of SEC v. Texas Gulf Sulphur Co., 401
F.2d 833 (2d Cir.1968), which has been described as the first of the truly
seminal insider trading cases, even though much of its core insider
trading holding had since been rejected by the U.S. Supreme Court. See
Bainbridge, supra note 4, at p. 529.
23 U.S. v. Chiarella, 445 U.S. 222 (1980).
24 Dirks v. SEC, 463 U.S. 646 (1984).
25 See Bainbridge, supra note 4, at p. 537.
426

the market but which, if available to a regular user of the

market, would or would be likely to be regarded by him as
relevant when deciding the terms on which transactions in
investments of the kind in question should be effected.26
The Philippines has adopted statutory regulations in the
trading of securities, tracing in fact as far back as 1936, or
just two years after the enactment of the US Securities
Exchange Act of 1934. The then National Assembly of the
Philippines enacted in 1936 Commonwealth Act No. 83,
also known as the Securities Act,27 designed to regulate the
sale of securities and to create a Securities and Exchange
Commission (SEC) for that purpose. Notably, Com. Act No.
83 did not contain any explicit provision prohibiting insider
trading in precise terms, even as it contained specific
provisions prohibiting the manipulation of stock prices28 or
the employment of manipulative and deceptive devices.29
This silence is unsurprising, considering that American
federal law had similarly failed to enact so specific a
prohibition and that Rule 10b-5 of the U.S. SEC had not
yet come into existence then.
However, in January of 1973, the SEC would issue a set
of rules,30 which required specific insiders to make a
resonably full, fair and accurate disclosure of every
material fact relating or affecting it which is of interest to
investors.31 It was explained therein that a fact is material
if it induces or tends to induce or otherwise affect the sale
or purchase of the secu-
_______________
26 Financial Securities and Markets Act of 2000, Part VIII (118)(2)(a).

27 See Section 1, Com. Act No. 83 (1936).
28 See Sec. 20, Com. Act No. 83 (1936)
29 See Sec. 21, Com. Act No. 83 (1936).
30 Rules Requiring Disclosure of Material Facts by Corporations whose
Securities are Listed in any Stock Exchange or Registered/Licensed Under
the Revised Securities Act, dated 29 January 1973.
31 See R. Morales, The Philippine Securities Regulation Code
(Annotated) (2002 ed.) at p. 199.
427
VOL. 567, OCTOBER 6, 2008 427

rities of the issuing corporation, such as an acquisition of

mining claims, patent or formula, real estate, or similar
capital assets; discovery of mineral ores; declaration of
dividends; executing a contract of merger or consolidation;
rights offering; and any other important event or
happening.32
The enactment of the Revised Securities Act in 1980
(Batas Pambansa Blg. 178, as amended) provided for the
first time a specific statutory prohibition in Philippine law
against insider trading. This was embodied in Section 30 of
the law, which provides:
Sec. 30. Insiders duty to disclose when trading.(a) It shall

be unlawful for an insider to sell or buy a security of the issuer, if
he knows a fact of special signifinace whith respest to the issuer
or the security that is not generally available, unless (1) the
insider proves that the fact is generally available or (2) if the
other party to the transaction (or his agent) is identified, (a) the
insider proves that the other party knows it, or (b) that other
party in fact knows it from the insider or otherwise.
(b) Insider means (1) the issuer, (2) a director or officer of,
or a person controlling, controlled by, or under common control
with, the issuer, (3) a person whose relationship or former
relationship to the issuer gives or gave him access to a fact of
special significance about the issuer or the security that is not
generally available, or (4) a person who learns such a fact from
any of the foregoing insiders as defined in this subsection, with
knowledge that the person from whom he learns the fact is such
an insider.
(c) A fact is of special significance if (a) in addition to being
material it would be likely, on being made generally available, to
affect the market price of a security to a significant extent, or (b) a
reasonable person would consider it especially important under
the circumstances in determining his course of action in the light
of such factors as the degree of its specificity, the extent of its
difference from information generally available previously, and its
nature and reliability.
_______________
32 Id.
428

Corporation
(d) This section shall apply to an insider as defined in

subsection (b) (3) hereof only to the extent that he knows of a fact
of special significance by virtue of his being an insider.
Contrary to the claims of respondents, such terms as

material fact, reasonable person, nature and
reliability and generally available as utilized in Section
30 do not suffer from the vice of vagueness and do not
necessitate an administrative rule to supply definitions of
the terms either. For example, as the ponente points out,
the 1973 Rules already provided for a definition of a
material fact, a definition that was actually incorporated
in Section 30.
Yet there is an underlying dangerous implication to
respondents arguments which makes the Courts rejection
thereof even more laudable. The ability of the SEC to
effectively regulate the securities market depends on the
breadth of its discretion to undertake regulatory activities.
The intractable adherents of laissez-faire absolutism may
decry the fact that there exists an SEC in the first place,
yet it is that body which assures the protection of interests
of ordinary stockholders and investors in the capital
markets, interests which may be overlooked by the issuers
of securities and their corporate overseers whose own
interests may not necessarily align with that of the
investing public. A free market that is not a fair market
is not truly free, even if left unshackled by the State as it
would in fact be shackled by the uninhibited greed of only
the largest players.
Respondents essentially contend that the SEC is precluded
from enforcing its statutory powers unless it first
translates the statute into a more comprehensive set of
rules. Without denigrating the SECs delegated rule-
making power, each provision of the law already
constitutes an executable command from the legislature.
Any refusal on the part of the SEC to enforce the statute on
the premise that it had yet to undergo the gauntlet of
administrative interpretation is derelict to that bodys legal
mandate. By no means is the Congress impervious to the
concern that certain statutory provisions
429
VOL. 567, OCTOBER 6, 2008 429

are best enforced only after an administrative regulation

implementing the same is promulgated. In such cases, the
legislature is solicitous enough to specifically condition the
enforcement of the statute upon the promulgation of the
relevant administrative rules. Yet in cases where the
legislature does not see fit to impose such a conditionality,
the body tasked with enforcing the law has no choice but to
do so. Any quibbling as to the precise meaning of the
statutory language would be duly resolved through the
exercise of judicial review.
It bears notice that unlike the American experience
where the U.S. Congress has not seen fit to specifically
legislate prohibitions on insider trading, relying instead on
the discretion of the U.S. SEC to penalize such acts, our
own legislature has proven to be more pro-active in that
regard, legislating such prohibition, not once, but twice.
The Revised Securities Act was later superseded by the
Securities Regulation Code of 2000 (Rep. Act No. 8799), a
law which is admittedly more precise and ambitious in its
regulation of such activity. The passage of that law is
praiseworthy insofar as it strengthens the States
commitment to combat insider trading. And the
promulgation of this decision confirms that the judiciary
will not hesitate in performing its part in seeing to it that
our securities laws are properly implemented and enforced.
III
Now, on the issue of prescription.

The issue boils down to the determination of whether
the investigation conducted by the SEC pursuant to Section
4533 of the Revised Securities Act in 1994 tolled the
running of the period of prescription. I submit it did.
Firstly, this Court, in ruling in Baviera v. Paglinawan34
that the Department of Justice cannot conduct a
preliminary
_______________
33 A similar provision is found in Section 53 of the Securities

Regulation Code of 2008.
34 G.R. No. 168380, 8 February 2007, 515 SCRA 170.
430

investigation for the determination of probable cause for

offenses under the Revised Securities Code, without an
investigation first had by the SEC, essentially underscored
that the exercise is a two-stage process. The procedure is
similar to the two-phase preliminary investigation prior to
the prosecution of a criminal case in court under the old
rules.35 The venerable J.B.L. Reyes in People v. Olarte36
finally settled a long standing jurisprudential conflict at
the time by holding that the filing of the complaint in
the Municipal Court, even if it be merely for
purposes of preliminary examination or
investigation, should, and does, interrupt the period
of prescription of the criminal responsibility, even if
the court where the complaint or information is filed
cannot try the case on its merits. The court gave three
reasons in support of its decision, thus:
. . . Several reasons buttress this conclusion: first the text of
Article 91 of the Revised Penal Code, in declaring that the period
of prescription shall be interrupted by the filing of the complaint
or information without distinguishing whether the complaint is
filed in the court for preliminary examination or investigation
merely, or for action on the merits. Second, even if the court
where the complaint or information is filed may only proceed to
investigate the case its actuations already represent the initial
step of the proceedings against the offender. Third, it is unjust to
deprive the injured party of the right to obtain vindication on
account of delays that are not under his control. All that the
victim of the offense may do not on his part to initiate the
prosecution is to file the requisite complaint.37
_______________
35 The first phase was the preliminary examination for the

determination of the fact of commission of the offense and the existence of
probable cause, as well as the issuance of the warrant of arrest. The
second phase was the preliminary investigation proper (after arrest, for
the determination of whether there was a prima facie case against the
accused and whether the issuance of the arrest warrant was justified).
36 125 Phil. 895; 19 SCRA 494 (1967).
37 Id.
431
VOL. 567, OCTOBER 6, 2008 431

The same reasons which moved the Court in 1967 to

declare that the mere filing of the complaint, whether for
purposes of preliminary examination or preliminary
investigation should interrupt the prescription of the
criminal action inspire the Courts ruling in this case.
It should be emphasized that Sec. 45 of the Revised
Securities Act invests the SEC with the power to make
such investigations as it deems necessary to determine
whether any person has violated or is about to violate any
provision of this Act or any rule or regulation thereunder,
and may require or permit any person to file with it a
statement in writing, under oath or otherwise, as the
Commission shall determine, as to all facts and
circumstances concerning the matter to be investigated
and to refer criminal complaints for violations of the Act to
the Department of Justice for preliminary investigation
and prosecution before the proper court.
The SECs investigatory powers are obviously akin to
the preliminary examination stage mentioned in People v.
Olarte. The SECs investigation and determination that
there was indeed a violation of the provisions of the
Revised Securities Act would set the stage for any further
proceedings, such as preliminary investigation, that may
be conducted by the DOJ after the case is referred to it by
the SEC.
Secondly, Sec. 2 of Act No. 332638 provides in part:
Prescription shall begin to run from the day of the commission

of the violation of the law, and if the same be not known at the
time, from the discovery thereof and the institution of judicial
proceedings for its investigation and punishment. The
prescription shall be interrupted when proceedings are
instituted against the guilty person, and shall begin to run
again if the proceedings are dismissed for reasons not constituting
jeopardy. (Emphasis supplied)
_______________
38 Entitled An Act To Establish Periods of Prescription for Violation

Penalized by Special Acts and Municipals Ordinances And To Provide
When Prescription Shall Begin To Act.
432

Act No. 3326 was approved on 4 December 1926, at a

time that the function of conducting the preliminary
investigation of criminal offenses was vested in the justices
of the peace. The prevailing rule at the time, embodied in
the early case of U.S. v. Lazada39 and later affirmed in
People v. Joson,40 is that the prescription of the offense is
halted once the complaint is filed with the justice of the
peace for preliminary investigation inasmuch as the filing
of the complaint signifies the institution of criminal
proceedings against the accused.41 People v. Parao42a
case which affirmed the power of the then municipal
president to conduct preliminary investigation in the
absence of the justice of the peace and of the auxiliary
justice of the peace when the same could not be deferred
without prejudice to the interest of justiceestablished the
correlative rule that the first step taken in the
investigation or examination of offenses partakes the
nature of a judicial proceedings which suspends the
prescription of the offense.43 But although the second
Olarte44 case made an affirmative ruling that the
preliminary investigation is not part of the action proper,
the Court therein nevertheless declared that such
investigation is quasi-judicial in nature and that as such,
the mere filing of the complaint with the justice of the
peace should stall the exhaustion of the prescriptive period
of the offense charged.
While it may be observed that the term judicial
proceedings in Sec. 2 of Act No. 3326 appears before
investigation and punishment in the old law, with the
subsequent change in set-up whereby the investigation of
change for purposes of prosecution has become the
exclusive function of the executive branch, the modifier
judicial should be taken to refer to the trial and judgment
stage only and not to the earlier investi-
_______________
39 9 Phil. 509 (1908).

40 46 Phil. 380.
41 9 Phil. 509, 511.
42 52 Phil. 712 (1929).
43 52 Phil. 712, 715.
44 G.R. No. L-22465, 28 February 1967, 19 SCRA 494.
433
VOL. 567, OCTOBER 6, 2008 433

gation phase. With this clarification, any kind of

investigative proceeding instituted against the guilty
person which may ultimately lead to his prosecution as
provided by law shall suffice to toll prescription.
Thus, in the case at bar, the initiation of investigative
proceedings against respondents, halted only by the
injunctive orders issued by the Court of Appeals upon their
application no less, should and did interrupt the period of
prescription.
DISSENTING OPINION
CARPIO, J.:
I dissent because the majority opinion is patently
contrary to the express provision of Section 2 of Act No.
3326.
The majority opinion holds that the administrative
investigation by the Securities and Exchange
Commission (SEC) interrupted the running of the
prescriptive period for violation of the Securities
Regulation Code (Code). The majority opinion holds:
x x x It should be noted that the SEC started investigative

proceedings against the respondents as early as 1994. This
investigation effectively interrupted the prescriptive
period.
xxx
x x x Thus, the investigation that was commenced by the
SEC in 1995 (sic), soon after they discovered the
questionable acts made by the respondents, effectively
interrupted the prescriptive period. (Emphasis supplied)
This ruling of the majority violates Section 2 of Act No.

3326 entitled An Act to Establish Periods of Prescription
for Violations Penalized by Special Acts and Municipal
Ordinances and To Provide When Prescription Shall Begin
To Run. Section 2 provides:
Section 2. Prescription shall begin to run from the day of the

commission of the violation of the law, and if the same be not
434

Corporation
known at the time, from the discovery thereof and the

institution of judicial proceedings for its investigation and
punishment. (Emphasis and underscoring supplied)
In Zaldivia v. Reyes, Jr.,1 the Court ruled that the

proceedings referred to in Section 2 of Act No. 3326 are
judicial proceedings and not administrative
proceedings. The Court held:
x x x This means that the running of the prescriptive

period shall be halted on the date the case is actually filed
in court and not on any date before that.
This interpretation is in consonance with the afore-quoted Act
No. 3326 which says that the period of prescription shall be
suspended when proceedings are instituted against the guilty
party. The proceedings referred to in Section 2 thereof are
judicial proceedings, contrary to the submission of the
Solicitor General that they include administrative proceedings.
His contention is that we must not distinguish as the law does not
distinguish. As a matter of fact, it does. (Emphasis and
underscoring supplied)
Indeed, Section 2 of Act No. 3326 expressly refers to the

institution of judicial proceedings. Contrary to the
majority opinions claim that a preliminary investigation
interrupts the prescriptive period, only the institution
of judicial proceedings can interrupt the running of
the prescriptive period. Thus, in the present case, since
no criminal case was filed in any court against respondents
since 1994 for violation of the Code, the prescriptive period
of twelve years under Section 12 of Act No. 3326 has now

of twelve years under Section 12 of Act No. 3326 has now
expired.
_______________
1 G.R. No. 102342, 3 July 1991, 211 SCRA 277.

2 Section 1 of Act No. 3326 provides: Violations penalized by special
acts shall, unless otherwise provided in such acts, prescribe in accordance
with the following rules: (a) after a year for offences punished only by a
fine or by imprisonment for not more than one month, or both; (b) after
four years for those punished by imprisonment for more than one month,
but less than two years; (c) after
435
VOL. 567, OCTOBER 6, 2008 435

The fact that the Court of Appeals enjoined the SEC

from filing any criminal, civil or administrative case
against respondents for violation of the Code is immaterial.
The SEC has no jurisdiction to institute judicial
proceedings against respondents for criminal violation of
the Code. Even if the Court of Appeals did not issue the
injunction, the SEC could still not have instituted any
judicial proceedings against respondents for criminal
violation of the Code. The Code empowers the SEC to
conduct only administrative investigations and to
impose fines and other administrative sanctions3
against violators of the Code. Section 54.2 of the

_______________
eight years for those punished by imprisonment for two years or more, but
less than six years; and (d) after twelve years for any other offence
punished by imprisonment for six years or more, except the crime of
treason, which shall prescribe after twenty years. Violations penalized by
municipal ordinances shall prescribe after two months. (Emphasis
supplied)
3 Section 54 of the Securities Regulation Code provides:

Administrative Sanctions.54.1. If, after due notice and hearing, the
Commission finds that: (a) There is a violation of this Code, its rules, or its
orders; (b) Any registered broker or dealer, associated person thereof has
failed reasonably to supervise, with a view to preventing violations,
another person subject to supervision who commits any such violation; (c)
Any registrant or other person has, in a registration statement or in other
reports, applications, accounts, records or documents required by law or
rules to be filed with the Commission, made any untrue statement of a
material fact, or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; or, in
the case of an underwriter, has failed to conduct an inquiry with
reasonable diligence to insure that a registration statement is accurate
and complete in all material respects; or (d) Any person has refused to
permit any lawful examinations into its affairs, it shall, in its discretion,
and subject only to the limitations hereinafter prescribed, impose any or
all of the following sanctions as may be appropriate in light of the facts
and circumstances:
(i) Suspension, or revocation of any registration for the offering
of securities;
436

Code states that the imposition of x x x administrative

sanctions shall be without prejudice to the filing of criminal
charges against the individuals responsible for the
violation. Thus, the criminal charges may proceed
separately and independently of the administrative
proceedings.
Under Section 53.1 of the Code,4 jurisdiction to institute
judicial proceedings against respondents for criminal
violation of the Code lies exclusively with the
Department of Justice
_______________
(ii) A fine of no less than Ten thousand pesos (P10,000.00) nor

more than One million pesos (P1,000,000.00) plus not more than
Two thousand pesos (P2,000.00) for each day of continuing
violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27,
disqualification from being an officer, member of the Board of
Directors, or person performing similar functions, of an issuer
required to file reports under Section 17 of this Code or any other
act, rule or regulation administered by the Commission;
(iv) In the case of a violation of Section 34, a fine of no more
than three (3) times the profit gained or loss avoided as a result of
the purchase, sale or communication proscribed by such Section;
and
(v) Other penalties within the power of the Commission to
impose.
54.2. The imposition of the foregoing administrative sanctions shall be
without prejudice to the filing of criminal charges against the individuals
responsible for the violation.
54.3. The Commission shall have the power to issue writs of execution
to enforce the provisions of this Section and to enforce payment of the fees
and other dues collectible under this Code.
4 Section 53.1 of the Securities Regulation Code provides that all
criminal complaints for violations of this Code, and the
implementing rules and regulations enforced or administered by the
Commission shall be referred to the Department of Justice for
preliminary investigation and prosecution before the proper
court. Section 45 of the old Revised Securities Act contained
substantially the same provision.
437
VOL. 567, OCTOBER 6, 2008 437

(DOJ). Section 53.1 of the Code expressly states that all

criminal complaints for violations of this Code xxx
shall be referred to the Department of Justice for
preliminary investigation and prosecution before
the proper court. No court ever enjoined the DOJ to
institute judicial proceedings against respondents for
criminal violation of the Code. Nothing prevented the
DOJs National Bureau of Investigation from investigating
the alleged criminal violations of the Code by respondents.
Thereafter, the DOJ could have conducted a preliminary
investigation and instituted judicial proceedings against
respondents. The DOJ did not and prescription has now set
in.
Accordingly, I vote to DISMISS the petition.
Petition granted, assailed decision reversed.
Notes.Before a futures commodity merchant can be

held liable under Section 20 of the Revised Rules and
Regulations on Commodity Futures Trading, there must be
proof that it knowingly permitted an unlicensed person to
commit the prohibited acts. (Queensland-Tokyo
Commodities, Inc. vs. Matsuda, 512 SCRA 276 [2007])
The enactment of the new Code in lieu of the Revised
Securities Act could not have extinguished all criminal acts
committed under the old law. An exception to the rule that
the absolute repeal of a penal law deprives the court of
authority to punish a person charged with violating the old
law prior to its repeal is where the repealing act reenacts
the former statute and punishes the act previously
penalized under the old law. (Gabionza vs. Court of
Appeals, 565 SCRA 38 [2008])
o0o
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SEC Vs Intelport

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SEC Vs Intelport

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Judge Rodolfo B.

Garcia meted with P20,500 fine for

Notes.The admission by the branch court interpreter

G.R. No. 135808. October 6, 2008.*

SECURITIES AND EXCHANGE COMMISSION,

Revised Securities Act; Administrative Law; Statutes; The

VOL. 567, OCTOBER 6, 2008 355

356 SUPREME COURT REPORTS ANNOTATED

Securities and Exchange Commission vs. Interport Resources

more extensive prerogative or deviate from the mandate of the

VOL. 567, OCTOBER 6, 2008 357

Securities and Exchange Commission vs. Interport Resources

30 of the Revised Securties Act. To fully understand how the

358 SUPREME COURT REPORTS ANNOTATED

Securities and Exchange Commission vs. Interport Resources

prudent man from a person with training in the law such as a

VOL. 567, OCTOBER 6, 2008 359

Securities and Exchange Commission vs. Interport Resources

360 SUPREME COURT REPORTS ANNOTATED

Securities and Exchange Commission vs. Interport Resources

VOL. 567, OCTOBER 6, 2008 361

Securities and Exchange Commission vs. Interport Resources

not stunt, the growth of the securities market. To avert the

362 SUPREME COURT REPORTS ANNOTATED

Securities and Exchange Commission vs. Interport Resources

PED, thus: SEC. 8. The Prosecution and Enforcement

VOL. 567, OCTOBER 6, 2008 363

Securities and Exchange Commission vs. Interport Resources

which ordinarily does not require a hearing. 2 Am J2d Adm L Sec.

364 SUPREME COURT REPORTS ANNOTATED

Securities and Exchange Commission vs. Interport Resources

would negate the summary nature of the administrative or quasi-

VOL. 567, OCTOBER 6, 2008 365

Securities and Exchange Commission vs. Interport Resources

case on the merits and has no purpose except that of determining

366 SUPREME COURT REPORTS ANNOTATED

Securities and Exchange Commission vs. Interport Resources

VOL. 567, OCTOBER 6, 2008 367

Securities and Exchange Commission vs. Interport Resources

368 SUPREME COURT REPORTS ANNOTATED

Securities and Exchange Commission vs. Interport Resources

with unfair advantage in the form of highly valuable secret inside

VOL. 567, OCTOBER 6, 2008 369

Securities and Exchange Commission vs. Interport Resources

Same; Same; Administrative Law; By no means is the

370 SUPREME COURT REPORTS ANNOTATED

PETITION for review on certiorari of a decision of the

1Penned by Associate Justice Emeterio C. Cui with Associate Justices

VOL. 567, OCTOBER 6, 2008 371

100% or the entire capital stock of Ganda Energy Holdings,

2GEHI is a subsidiary wholly owned by GHB. CA Rollo, p. 51.

372 SUPREME COURT REPORTS ANNOTATED

of the SEC to explain IRCs failure to immediately disclose

since under Section 8 of Presidential Decree No. 902-A,9 as

6Rollo, pp. 9-10.

VOL. 567, OCTOBER 6, 2008 373

Presidential Decree No. 1758, jurisdiction was conferred

WHEREFORE, premised on the foregoing considerations, the

representations, in violation of any law or rules and regulations administered and

10CA Rollo, pp. 68-94.

374 SUPREME COURT REPORTS ANNOTATED

dure Before the Prosecution and Enforcement Department (PED),

Respondents filed an Omnibus Motion for Partial